G-9 DEPOSIT, CAMPO MORADO PROJECT TECHNICAL REPORT ON THE 2007 PROGRAM AND PRELIMINARY ASSESSMENT OF...

REVISED TECHNICAL REPORT ON THE

2007 PROGRAM AND PRELIMINARY ASSESSMENT OF THE

G-9 DEPOSIT, CAMPO MORADO PROJECT

GUERRERO STATE MEXICO

Latitude 18° 12’ N Longitude 100° 08’ W

for Farallon Resources Ltd.

Qualified Persons:

David M.R. Stone, P.Eng. Stephen J. Godden, F.I.M.M.M., C.Eng.

MINEFILL SERVICES, INC. P.O. Box 725, Bothell, Washington, USA 98041

Telephone: (425) 486-0992 Fax: (425) 486-0882

and J. David Gaunt, P. Geo.

Hunter Dickinson Inc.

Report as Revised and Amended: December 27, 2007 Data Effective Date: September 23, 2007

MINEFILL SERVICES, INC. Page i CAMPO MORADO PROJECT, G-9 DEPOSIT

FARALLON RESOURCES LTD.

TABLE OF CONTENTS Contents Page 3 EXECUTIVE SUMMARY 1

3.1 Mineralization 1 3.2 Exploration Activity 1 3.3 Campo Morado Priorities 1 3.4 Metallurgical Studies 2 3.5 Mineral Resource Estimates 3 3.6 G-9 Project Pre-Development 4 3.7 Preliminary Mining Scoping Study 6 3.8 Preliminary Assessment 6 3.9 Financial Highlights (EBITDA) 8 3.10 Conclusions and Recommendations 9 4 INTRODUCTION 11

4.1 Qualified Persons 11 4.2 Site Visits by the Authors 12 4.2 Data Sources 12 5 RELIANCE ON OTHER EXPERTS 14 6 PROPERTY DESCRIPTION AND LOCATION 15

6.1 Property Location 15 6.2 Mineral Rights 15 6.2.1 Campo Morado and Reducción La Alina Concessions 17 6.2.2 La Trinidad Concession 19 6.2.3 Reducción El Mil, 2A Reducción Farallon and Farallon 2 Concessions 19 6.3 Mining Law 19 6.3.1 Legal Framework 20 6.3.2 Government Agencies 20 6.3.3 Foreign Investment 20 6.3.4 Concessions 21 6.3.5 Surface Rights and Obligations 22 6.3.6 Mining Obligations 22 6.4 Taxes and Royalties 22 6.5 Metal Sales 23 6.6 Environmental Regulations 23 6.6.1 Legal Framework 23 6.6.2 Government Agencies 24 6.6.3 Environmental Studies 24

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Contents continued…. Page 6.7 Permits 25 6.7.1 Exploration Activities (including preliminary mine development) 25 6.7.2 Construction Phase 26 6.7.3 Mining Phase 26 6.8 Environmental Liabilities 28 7 ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE AND PHYSIOGRAPHY 28

7.1 Topography, Vegetation and Elevation 28 7.2 Accessibility 29 7.3 Climate 30 7.4 Infrastructure 31 7.4.1 Surface Facilities 31 7.4.2 Electricity 31 7.4.3 Potable Water 31 7.4.4 Operations’ Water 31 7.5 Local Resources 32 7.6 Socio-Economic Impact 32 8 HISTORY 33

8.1 Overview 33 8.2 Past Production 33 8.3 Historical Resource Estimates 34 9 GEOLOGICAL SETTING 34

9.1 Regional Geology 34 9.2 Property Geology 36 9.3 Deposits’ Geology 36 9.3.1 Reforma Deposit 36 9.3.2 El Rey Deposit 37 9.3.3 Naranjo Deposit 37 9.3.4 El Largo Deposit 37 9.3.5 G-9 Deposit 37 9.4 G-9 Comparisons 39 9.5 Structure 39 10 DEPOSIT TYPE 40 11 MINERALIZATION 40

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Contents continued…. Page 12 EXPLORATION 41

12.1 Overview – November 1995 to November 1998 41 12.2 Overview – August 2004 to May 2005 42 12.3 Overview - June 2005 to September 23, 2007 42 13 DRILLING 43

13.1 Overview – June 1996 to May 1998 44 13.2 Overview – August 2004 to May 2005 45 13.3 Overview - June 2005 to September 23, 2007 46 14 SAMPLING METHOD AND APPROACH 51

14.1 Core Sampling 51 15 SAMPLE PREPARATION, ANALYSIS AND SECURITY 52

15.1 Chain-of-Custody 52 15.2 Assay Method 56 15.3 Assay Validation 56 15.4 Specific Gravity Data 56 16 DATA VERIFICATION 57

16.1 Database Description 57 16.2 Verification Approach 57 16.3 Check Analyses 58 17 ADJACENT PROPERTIES 62

18 MINERAL PROCESSING AND METALLURGICAL TESTING 63

18.1 Overview 63 18.1.1 El Largo, Naranjo and Reforma Mineralization 63 18.1.2 G-9 Mineralization 64 18.2 Scope of G-9 Metallurgical Test Programs 65 18.3 G&T Services Report #1 – March 2006 66 18.3.1 Chemical and Mineralogical Analysis 67 18.3.2 Metallurgical Results 69

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Contents continued…. Page 18.4 G&T Services Report #2 – April 2006 70 18.4.1 Chemical and Mineralogical Analysis 71 18.4.2 Metallurgical Results 73 18.5 G&T Services Report #3 – October 2006 73 18.5.1 Chemical and Mineralogical Analysis 75 18.5.2 Metallurgical Results 76 18.5.3 Comments 77 18.5.3 Water Impacts 78 18.6 G&T Services Report #4 – April 2007 78 18.6.1 Chemical and Mineralogical Analysis 79 18.6.2 Metallurgical Results 79 18.6.3 Mineral Fragmentation 81 18.7 Ancillary Test Programs 82 19 MINERAL RESOURCE ESTIMATES 83

19.1 El Largo, El Rey, Naranjo and Reforma Deposits 83 19.1.1 Summary of Methodology 83 19.1.2 Resource Summary 84 19.2 G-9 Deposit 84 19.2.1 Geological Modelling 86 19.2.2 Assay Statistics, Grade Capping and Compositing 87 19.2.3 Block Model Definition and Estimation 92 19.2.4 Grade Estimation Validation 94 19.2.5 Resource Classification 94 19.2.6 Resource Summary 95 19.3 Other Factors That May Affect Mineral Resources 96 19.3.1 Non-Technical Issues 96 19.3.2 Technical Issues 97 20 OTHER RELEVANT DATA AND INFORMATION 98

20.1 Project Development 98 20.1.1 Parallel-Track Strategy 98 20.1.2 Current Status 100 20.2 Budget Review 101 20.3 Preliminary Mining Study 103 20.3.1 Access Development 103 20.3.2 Waste Development Plan 104 20.3.3 Stoping and Ore Handling 105 20.3.4 Preliminary Production Schedule 105 20.3.5 Working Production Schedule 106 20.3.6 Mill Feed Processing Model 108 20.3.7 Tailings Disposal 109

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Contents continued…. Page 20.4 Preliminary Assessment 109 20.4.1 Key Assumptions 110 20.4.2 Operating Costs 111 20.4.3 Pre-Production Capital Costs 112 20.4.4 Sustaining Capital Costs 112 20.4.5 Smelter Recoveries 114 20.4.6 Metal Prices 114 20.4.7 Financial Highlights 114 20.4.8 Sensitivity Analyses 118 21 INTERPRETATION AND CONCLUSIONS 119 22 RECOMMENDATIONS 123 23 REFERENCES 125 24 DATE AND SIGNATURE PAGE 127

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LIST of TABLES Table Page Table 3.1 Total Mineral Resources Estimated by Zinc Grade Cut-off, Campo Morado Deposits, November 2006 3

Table 3.2 Summary of Estimated Metal Prices, September 2007 7

Table 3.3 Summary of EBITDA Financial Highlights, G-9 Operation 8

Table 3.4 Sensitivity Analysis (NPV[0], in US$ millions) of Capital and Operating Costs 9

Table 3.5 Sensitivity Analysis (IRR) of Capital and Operating Costs 9

Table 3.6 Sensitivity Analysis of Zinc Metal Prices 9

Table 3.7 Summary of The Company’s Planned Technical Program, October 2007 to end March 2008, G-9 Project 10

Table 6.1 Campo Morado Project Concessions held by Farallon Resources Limited, through its wholly owned Mexican subsidiary Farallon Minera

Mexicana S.A. de C.V. 16

Table 6.2 A Summary of the Mexican Tax Regime 23

Table 6.3 Applicable Environmental Standards, Campo Morado Project 27

Table 7.1 Access Roads from Mexico City to the Campo Morado Project Site 30

Table 13.1 Summary of Campo Morado Drilling Campaigns, June 1996 to May 1998 45

Table 13.2 Summary of Assay Results, G-9 Drillhole Intersections, June 1996 to May 1998 45

Table 13.3 Summary of Campo Morado Drilling Campaigns, August 2004 to May 2005 46

Table 13.4 Summary of Assay Results, G-9 Drillhole Intersections, August 2004 to May 2005 46

Table 13.5 Summary of Campo Morado Drilling Campaigns, June 2005 to September 2006 47

Table 13.6 Summary of Significant Assay Results, G-9 Drillhole Intersections, June 2005 to September 2006 48

Table 13.7 Summary of Significant Assay Results, G-9 Drillhole Intersections, November 2006 to September 23, 2007 50

Table 16.1 Summary of G-9 Primary vs. Check Assay Results, 2004 to 2006 58

Table 18.1 Precious Metal Distribution for the 1997 Composite Sample 64

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List of Tables continued…. Page Table 18.2 Source of Report #1 Metallurgical Samples 66

Table 18.3 Chemical Composition of the Report #1 Composites 67

Table 18.4 Mineral Composition of the Report #1 Composites 67

Table 18.5 Report #1 - Mineral Liberation in Two Dimensions 68

Table 18.6 Report #1 – Preliminary Metallurgical Test Data 69

Table 18.7 Source of Report #2 Metallurgical Samples 70

Table 18.8 Chemical Composition of the Report #2 Composites 71

Table 18.9 Mineral Composition of the Report #2 Composites 72

Table 18.10 Report #2 - Mineral Liberation in Two Dimensions 72

Table 18.11 Report #2 – Preliminary Metallurgical Test Data 74

Table 18.12 Chemical Composition of the Report #3 Average-Grade Composite 75

Table 18.13 Mineral Composition of the Report #3 Average-Grade Composite 75

Table 18.14 Nominal Flotation Test Conditions, Report #3 Average-Grade Composite 76

Table 18.15 Average Metallurgical Balance, Report #3 Average-Grade Composite 77

Table 18.16 Chemical Composition of the Report #4 High-Grade Composite 79

Table 18.17 Mineral Composition of the Report #4 High-Grade Composite 79

Table 18.18 Nominal Flotation Test Conditions, Report #4 High-Grade Composite 80

Table 18.19 Average Metallurgical Balance, Report #4 High-Grade Composite 80

Table 18.20 Product Grinds for Report #4 Locked Cycle Tests, K80 Microns 81

Table 18.21 Distribution of Minerals in the Report #4 High-Grade and Report #3 Average-Grade Composites 81

Table 19.1 Mineral Resources Estimated by Zinc Grade Cut-off, El Largo, El Rey, Naranjo and Reforma Deposits, November 2006 85

Table 19.2 G-9 Drillholes Used For Geological Modelling and Resource Estimation, November 2006 Resource Estimate 87

Table 19.3 Metal Capping Grades within the VMS Solids, November 2006 Resource Estimate 87

Table 19.4 Block Model Definition, G-9 Deposit 93

Table 19.5 ID2 Search Parameters for G-9 Grade Estimation 93

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List of Tables continued…. Page Table 19.6 Inferred Mineral Resources Estimated by Zinc Grade Cut-off, G-9 Deposit, November 2006 95

Table 20.1 Summary of Planned and Actual Expenditures, January 01 to September 20, 2007, G-9 December 2006 Budget 102

Table 20.2 Summary of Key Elements of the Preliminary Scoping Study 103

Table 20.3 Summary of the Preliminary Production Schedule, August 2006 106

Table 20.4 Summary of the Working Production Schedule, June 2007 107

Table 20.5 Summary of the Company’s Mill Feed Processing Model, June 2007 108

Table 20.6 Summary of the Operating Cost Estimates, MineFill’s September 2007 Preliminary Cashflow Model 112

Table 20.7 Summary of the Company’s Capital Cost Estimates, June 2007 113

Table 20.8 Assumed Average Smelter Recoveries, G-9 Concentrates, September 2007 114

Table 20.9 Summary of Estimated Average Metal Prices, September 2007 114

Table 20.10 Summary of EBITDA Financial Highlights, G-9 Operation 115

Table 20.11 Summary Page, MineFill’s G-9 Preliminary Cashflow Model 115

Table 20.12 Metal Produced, MineFill’s G-9 Preliminary Cashflow Model 116

Table 20.13 Net Smelter Return, Copper Concentrate, MineFill’s G-9 Preliminary Cashflow Model 116

Table 20.14 Net Smelter Return, Lead Concentrate, MineFill’s G-9 Preliminary Cashflow Model 117

Table 20.15 Net Smelter Return, Zinc Concentrate, MineFill’s G-9 Preliminary Cashflow Model 117

Table 20.16 Sensitivity Analysis (NPV[0], in US$ millions) of Capital and Operating Costs 118

Table 20.17 Sensitivity Analysis (IRR) of Capital and Operating Costs 118

Table 20.18 Sensitivity Analysis of Zinc Metal Prices 118

Table 21.1 Summary of Significant Assay Results, Drillhole Intersections, High-Grade Southeast Zone, G-9 Deposit 120

Table 21.2 Summary of Significant Assay Results, Drillhole Intersections, High-Grade Abajo Zone, G-9 Deposit 122

Table 22.1 Summary of The Company’s Planned Technical Program, October 2007 to end March 2008, G-9 Project 124

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LIST of FIGURES Figure Page Figure 3.1 The G-9 Processing Flowsheet 2

Figure 3.2 The G-9 Project Site 4

Figure 3.3 The G-9 Underground Access Development Layout 5

Figure 3.4 The Company’s Parallel-Track Approach to the G-9 Project 5

Figure 6.1 General Location Maps 15

Figure 6.2 Concession Plan, in UTM Co-ordinates 16

Figure 6.3 Deposits’ Location Plan 17

Figure 7.1 Accommodation Blocks at the Campo Morado Exploration/ Administration Camp 28

Figure 7.2 The Campo Morado District, Showing the Location of the Various Deposits 29

Figure 7.3 A General View, Looking West, from Farallon’s Campo Morado Exploration/Administration Camp 29

Figure 9.1 Regional Geology Plans 35

Figure 13.1 General Deposit Thickness Isopach Plan Showing all Holes Drilled to September 23, 2007 43

Figure 13.2 G-9 Deposit Thickness Isopach Plan Showing all Holes Drilled to September 23, 2007 44

Figure 14.1 A General View of Farallon’s Core Storage and Logging Facility, from the Campo Morado Exploration/Administration Camp 52

Figure 15.1 1996 to 1998 Sampling and Analytical Flow Chart, Host Rock Samples 53

Figure 15.2 1996 to 1998 Sampling and Analytical Flow Chart, Mineralized Samples 54

Figure 15.3 2004 to 2007 Sampling and Analytical Flow Chart 55

Figure 16.1 Check Analysis Results for Gold (2004 to 2006) 59

Figure 16.2 Check Analysis Results for Silver (2004 to 2006) 59

Figure 16.3 Check Analysis Results for Copper (2004 to 2006) 60

Figure 16.4 Check Analysis Results for Lead (2004 to 2006) 60

Figure 16.5 Check Analysis Results for Zinc (2004 to 2006) 61

Figure 18.1 The G-9 Processing Flowsheet 65

Figure 18.2 Metallurgical Samples, G-9 Deposit, Reports #1 to #3 Test Cycles 66

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List of Figures continued…. Page Figure 18.3 Report #1 Flotation Test Flowsheet 69

Figure 18.4 The Report #3 Flotation Test Flowsheet 76

Figure 18.5 The Report #4 Flotation Test Flowsheet 80

Figure 19.1 Modelled Massive Sulphide and Replacement Bodies, November 2006 Resource Estimate 86

Figure 19.2 Probability Plots for Gold – All Domains 88

Figure 19.3 Probability Plots for Silver – All Domains 89

Figure 19.4 Probability Plots for Copper – All Domains 90

Figure 19.5 Probability Plots for Lead – All Domains 91

Figure 19.6 Probability Plots for Zinc – All Domains 92

Figure 20.1 The G-9 Project Site 98

Figure 20.2 The Company’s Parallel-Track Approach to the G-9 Project 99

Figure 20.3 The Developing G-9 Plant Site and Mill Access/Ore Haul Road, June 2007 100

Figure 20.4 The G-9 Portal Site (San Agustin) and Six Cubic Yard Scoop/LHD 101

Figure 20.5 The G-9 Underground Access Development Layout 104

Figure 20.6 Sensitivity of NPV(0) and IRR to Capital and Operating Costs 118

Figure 20.7 Sensitivity of NPV(0) and IRR to the Zinc Price 119

Figure 21.1 G-9 Deposit Thickness Isopach Plan Showing the Recently Drilled Holes into the Southeast and Abajo (New) Zones 122

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NOMENCLATURE, ABBREVIATIONS and ACRONYMS

Abbreviation Unit or Description Ag silver amsl above mean sea level Au gold B.C. British Columbia, Canada CONAFOR Mexican National Forestry Commission (Comisión Nacional Forestal) CONALEP

Mexican National College of Technical Education (Colegio Nacional de Educación Profesional Técnica)

ERA Environmental Risk Assessment CAN Mexican National Water Commission (Comisión Nacional del Agua) CFE Mexican Federal Electricity Commission (Comision Federal de Electricidad) CGM Coordinación General de Mineria C$ Canadian Dollars Cu copper CUS Change of Use of Soil Permit (Cambio de Uso de Suelo) g/t grams per tonne ha hectare INAH

Mexican National Anthropological and Historical Institute (Instituto Nacional de Antropología e Historia)

INE Mexican National Institute of Ecology (Instituto Nacional de Ecologia) IRR internal rate of return km kilometre LAN Mexican Law of National Waters (Ley de Aguas Nacionale) lb pound (weight) LHD Load-Haul-Dump (trackless mining) unit LGEEPA

Mexican General Law of Ecologic Equilibrium and Environmental Protection (Lay General de Equilibrio Ecológico y Protección al Ambiente)

m metre MIA-P Environmental Impact Manifest (Spanish) Mt million tonnes μm micron NI National Instrument (43-101) NPV net present value NSR net smelter return oz Troy ounce Pb lead % percent PROFEPA

Mexican Federal Agency for the Protection of the Environment (Procuraduría Federal de Protección al Ambiente)

SEMARNAT

Mexican Secretariat of Environmental and Natural Resources (Secretaría de Medio Ambiente y Recursos Naturales)

SG specific gravity SGM Mexican Geological Service (Servicio Geologico Mexicano) stpd short tons per day t tonne (metric) US$ United States Dollars VMS volcanogenic massive sulphide (type mineral deposit) Zn zinc

All dollar figures are in United States Dollars (US$), unless otherwise stated.

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3 EXECUTIVE SUMMARY

Farallon Resources Limited (the “Company”) is the 100 percent owner of the Campo Morado Project in Mexico, through its wholly owned Mexican subsidiary Farallon Minera Mexicana S.A. de C.V. The Project area is some 160 kilometres south-southwest of Mexico City, it comprises 11,813.9 hectares in six mining concessions. The Campo Morado concession has been the focus of the Company’s exploration activity to date. Five primary mineral deposits (El Largo, El Rey, G-9, Naranjo and Reforma) and a number of other, less well-defined mineralized occurrences have been identified.

3.1 Mineralization

Campo Morado mineralization is of the volcanogenic massive sulphide (“VMS”) type. The massive sulphide horizons host polymetallic (base metal and precious metal) mineralization within a complex, layered sequence of felsic to intermediate volcanics. The metals with economic potential include gold, silver, copper, lead and zinc (not listed in order of economic significance).

3.2 Exploration Activity

The Company’s exploration activities have covered two main periods: from November 1995 to November 1998, when their exploration activities temporarily ceased due to unfavorable metal prices; and from August 2004 to present. Up to the data cut-off date for this Technical Report of September 23, 2007, the Company had completed 649, exploration diamond drillholes (194,547.30 metres), including 194 G-9 exploration diamond drillholes (95,585.61 metres).

3.3 Campo Morado Priorities

High-grade mineralization in the G-9 deposit was intersected in drillhole 5420 in June 2005 (13.96 metres true width grading 1.06 g/t Au, 67 g/t Ag, 1.76% Cu, 0.69% Pb and 14.16% Zn). Further drilling established the presence of a persistent zone of high-grade material in the so-called Southeast Zone. A preliminary resource estimate for G-9 was completed in late 2005. Metallurgical testing confirmed the amenability of G-9 mineralization to conventional flotation methods to recover selective copper, lead and zinc concentrates, with important by-products of gold and silver. These results together identified the G-9 deposit as being distinctly different from the other four primary Campo Morado VMS deposits that contain comparatively lower grade mineralization and require the use of hydrometallurgical methods to produce gold, silver, copper and zinc.

In 2006, the G-9 deposit became the primary target for Campo Morado Project development. An updated resource estimate was completed in November 2006, following infill and step-out drilling. G-9 continued to be the main focus of work during 2007 and it is the technical details of



the G-9 deposit that are the primary focus of this Technical Report. The other four primary deposits are still considered an important aspect of the Campo Morado property, insofar as they have longer-term development potential.

3.4 Metallurgical Studies

The fourth in a series of G-9 metallurgical studies was completed in April 2007. Its purpose was to investigate the metallurgical response of a composite of high-grade mineralization from the G-9 Southeast Zone (the average grades of the so-called High-Grade Composite were 1.13 g/t Au, 100 g/t Ag, 0.70% Cu, 0.42% Pb and 14.80% Zn). In the opinion of MineFill, the samples used in the second, third and fourth metallurgical study programs were representative of the mineralization that the studies intended to test. The Study One samples might not have been representative of large amounts of the resource, due to the limited amount of drilling that at the time had been completed. The results of the fourth series of tests indicate that:

• a zinc concentrate grade of 54% Zn can be achieved with a 94 percent zinc recovery; and

• a copper concentrate grade of 24% Cu can be produced with an 84 percent copper recovery.

The Study Four results reflect a significant overall improvement in the metallurgical response of high-grade G-9 mineralization compared with average-grade mineralization/the Average Grade Composites considered within the scope of the third metallurgical study (that was completed during the third quarter of 2006). In particular, copper and zinc recoveries were significantly higher (84 percent versus 69 percent for copper and 94 percent versus 86 percent for zinc) and a modest improvement in silver recovery was achieved (63 percent versus 48 percent).

Figure 3.1 summarizes the G-9 processing flowsheet defined as a result of the metallurgical test programs to date (September 2007). Detailed mill and process plant engineering is being carried out by M3 Engineering & Technology Corporation of Tucson, Arizona (see the Company’s news release dated March 22, 2007).

Figure 3.1 – The G-9 Processing Flowsheet

Feed

Zinc 1 ClTail

st

Zinc RoTail36µm K80 MBS

3418A

10µm K80

Cu/Pb Circuit Zn Circuit

Bulk Conto reverse circuit

ZincCon

MBS

10µm K80

LimeCuSO4SIPXReverse Circuit

Rev ConPb Con

Bulk Con

Rev TailCu Con

40°CNaCN



3.5 Mineral Resource Estimates

The Company has compiled and reported mineral resource estimates at different zinc grade cut-offs for each of the five primary Campo Morado deposits, which estimates are summarized on Table 3.1. The G-9 estimates were compiled from the results of all surface exploration diamond drilling to October 2006 that included 134 exploration holes (67,893.44 metres). In the opinion of MineFill, the mineral resource estimates summarized on Table 3.1 are fully compliant with:

• the definitions stated in the Canadian Institute of Mining and Metallurgy and Petroleum Standards on Mineral Resources and Mineral Reserves adopted by the CIM Council on December 11, 2005; and

• the CIM Best Practice guidelines for Estimation of Mineral Resources and Mineral Reserves dat November 23, 2003.

Table 3.1 Total Mineral Resources Estimated by Zinc Grade Cut-off,

Campo Morado Deposits, November 2006 Resource

Class Zinc

Cut-off (%) Tonnes Au (g/t) Ag (g/t) Cu (%) Pb (%) Zn (%) Totals for G-9 Deposit

Inferred

2.0 4.0 6.0 8.0

10.0

5,570,000 3,840,000 2,590,000 1,770,000 1,250,000

2.8 3.0 3.0 2.9 2.6

186 200 205 201 195

1.3 1.5 1.7 1.9 2.0

1.0 1.2 1.3 1.3 1.2

7.3 9.3 11.4 13.4 15.3

Totals for El Largo, El Rey, Naranjo and Reforma Deposits Indicated

3.0 4.0 5.0 6.0 7.0 8.0

13,243,000 8,577,000 4,933,000 2,507,000 1,212,000

511,000

2.03 2.12 2.14 1.79 1.54 1.27

138 153 166 163 167 171

0.49 0.47 0.45 0.40 0.37 0.36

1.25 1.41 1.59 1.70 1.88 2.05

4.84 5.57 6.37 7.26 8.11 9.06

Inferred

3.0 4.0 5.0 6.0 7.0 8.0

1,222,000 554,000 241,000 114,000 70,000 41,000

1.51 1.51 1.41 1.31 1.16 0.90

121 137 151 153 155 144

0.60 0.53 0.42 0.36 0.32 0.28

0.86 1.03 1.30 1.53 1.73 1.96

4.33 5.28 6.43 7.48 8.09 8.58

The reader should be aware that Inferred mineral resources are considered too speculative geologically to have economic considerations applied to them that would enable them to be categorized as mineral reserves.

Exploration drilling during 2007 continues to enlarge the defined areas of G-9 mineralization. The average overall grade of intersected G-9 mineralization also appears to be increasing. This may stated because since the November 2006 mineral resource estimates were compiled, and up to the data cut-off date for this Technical Report of September 23, 2007, an additional 59 exploration holes (27,097.51 metres) had been drilled into the G-9 deposit. 33 Of the additional



holes intersected significant, high-grade sulphide mineralization in the so-called Southeast and Abajo Zones, many of which holes define extensions to the mineralized zones that were delimited for purposes of the November 2006 resource estimates.

More surface infill and step-out drillholes are planned for completion during 2007 (i.e. post the data cut-off date for this Technical Report of September 23, 2007). Underground drilling is also planned, it will commence once the required access development is complete. It is anticipated that the Company will publish updated mineral resource estimates for the G-9 deposit early in 2008.

3.6 G-9 Project Pre-Development

Planning and design for G-9 (mine, processing plant, infrastructure and tailings dam) was initiated to establish the appropriate parameters for designing the underground access decline and to prepare the site, based on a parallel-track approach. Figure 3.2 is an overview of the underground access and ventilation declines, as well as other site facilities. Figure 3.3 summarizes the underground access development layout. At the time of writing (September 2007) surface preparation (plant site, access roads, etc) was actively underway and the underground access ramps were actively being developed. Key equipment had also been ordered.

Figure 3.2 – The G-9 Project Site



Figure 3.3 – The G-9 Underground Access Development Layout Underground access development and other engineering activity is continuing at the same time as step-out and infill surface drilling because a parallel-track, G-9 development program is being pursued by the Company, in the manner suggested by Figure 3.4. The work is directed towards completion of the technical work required to allow a production decision to be made prior to the target date of July 01, 2008 for start-up production at G-9. The Company has verbally reported to MineFill that it will commence work on feasibility-level studies for G-9 once Measured and Indicated resources for the deposit have been established.

Figure 3.4 – The Company’s Parallel-Track Approach to the G-9 Project



3.7 Preliminary Mining Scoping Study

Preliminary production planning, based on the Company’s November 2006 resource estimate, has identified a total diluted production tonnage for the G-9 deposit of 3,130,133 tonnes at an average grade of 9.69% Zn, for a five percent zinc grade cut-off. This includes high-grade mineralization from the Southeast Zone that contains:

• 1.46 million tonnes of Inferred mineral resource at 2.7 g/t Au, 202 g/t Ag, 1.9% Cu, 1.2% Pb and 11.5% Zn, above a two percent zinc grade cut-off; or

• 0.89 million tonnes of Inferred mineral resource at 2.3 g/t Au, 179 g/t Ag, 2.1% Cu, 1.3% Pb and 15.7% Zn above an eight percent zinc grade cut-off.

A mill feed production schedule has been compiled, which schedule incorporates the reasonable assumption of selective stoping in the high-grade Southeast Zone during the first few production years. A mill feed processing schedule has also been defined, it is based on the mill feed production schedule and the results of metallurgical tests on G-9 mineralized material.

The results of the preliminary mining scoping study were used to establish the planned production rate of 1,500 tonnes per day, hence the diluted production depletion and mill feed processing schedules, as well as optimum dimensions for the access development ramp (4.5 metres by 4.5 metres). The dimensions of the access ramp were based on an (mining engineering) experience- and industry precedent-based preliminary planning process. In the opinion of MineFill, the dimensions and layout of the underground access development are fit for purpose and the planned production rate is appropriate, albeit that a modest increase may be justified, given the expanding size of the G-9 mineral deposit.

Details of the stoping method have not been finalized; cut & fill and room & pillar methods have instead been assumed. In the opinion of MineFill, the provisional nature of the stoping designs is not a limitation of current planning because it may reasonably be construed as both usual and preferable, in areas where new deposits and/or new mines are being developed, to retain a strong element of flexibility in stope planning and design ahead of site-specific knowledge of rockmass conditions experienced underground.

3.8 Preliminary Assessment

This Technical Report includes a preliminary cashflow analysis of mining and processing G-9 mineralized material, based in part on the production and processing schedules earlier outlined. The cashflow model was compiled as part of MineFill’s internal due diligence carried out as part of the investigations presented in the Technical Report. The model assumes the metal prices summarized on Table 3.2, that copper, lead and zinc concentrates will be toll-smelted and that the metals (gold, silver, copper, lead and zinc) will likely be refined in Asia, for sale in Asia. The option of toll-smelting and metal refining within Mexico is being investigated by the Company. The option that yields the better financial return will ultimately be employed.



Table 3.2

Summary of Estimated Average Metal Prices, September2007 Production Year End (same as fiscal year end)

Metal June 30, 2009

June 30, 2010

June 30, 2011

June 30, 2012

June 30, 2013

June 30, 2014

June 30, 2015

Gold (US$/oz) Silver (US$/oz) Copper (US$/lb) Lead (US$/lb) Zinc (US$/lb)

550 8.00 2.59 0.49 1.30

500 7.00 2.33 0.44 1.10

500 6.00 2.11 0.40 0.88

500 6.00 1.40 0.40 0.75

500 6.00 1.40 0.40 0.75

500 6.00 1.40 0.40 0.75

500 6.00 1.40 0.40 0.75

MineFill’s preliminary assessment does not include:

• potential additional G-9 resources outlined by diamond drilling that has been completed since the mineral resource estimates summarized on Table 3.1 were estimated, since when –

o the Company has announced in various news releases significant intersections of massive sulphides that include intersections in step-out holes in the high-grade Southeast Zone, and

o the discovery of a new mineralized zone (the Abajo Zone) of high-grade material that is immediately to the north of the area in which the November 2006 resources are located;

• the upside benefit of processing, at some future date, mineralized material from the El Largo, El Rey, Naranjo and Reforma deposits; or

• the cost of rehabilitation that has not yet been defined due to further anticipated changes to the production schedule for a G-9 operation (grade and tonnes, the latter leading to a longer life-of-mine that is currently 6.3 years), as well as the likely continued use of the G-9 plant site for future processing operations.

As regards the first preceding point, it is emphasized that since the November 2006 resource estimates were reported, and up to the data cut-off date for this Technical Report of September 23, 2007, an additional 59 surface exploration holes were drilled into the G-9 deposit, 33 of which holes intersected significant sulphide mineralization in the Southeast and Abajo Zones. Additional infill and step-out drillhole intersections in the Southeast and Abajo Zones are planned for completion during 2007. A changing G-9 production schedule may, therefore, reasonably be expected on the back of future changes to the resource base, including an increase in the available tonnes (hence a longer G-9 life-of-mine) and a more prolonged, initial production period of high-grade mineralization.



3.9 Financial Highlights (EBITDA)

The Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) highlights of MineFill’s preliminary G-9 cashflow model are summarized on Table 3.3. The results reflect a robust project and support the continued parallel-track development of the G-9 Project.

Table 3.3 EBITDA Financial Highlights, G-9 Operation

Tonnes Milled 3,130,133 tonnes Average Grade 3.05 g/t Au

200 g/t Ag 1.58% Cu 1.15% Pb 9.69% Zn

Total Recovered Metal 52,800 oz Au 6,970,000 oz Ag 70,010,000 lb Cu 32,884,000 lb Pb 456,530,000 lb Zn

Average Annual Metal Recovery (Life-of-Mine = 6.3 years)

8,400 oz Au 1,106,000 oz Ag 11,113,000 lb Cu 5,213,000 lb Pb 72,450,000 lb Zn

Average On-site Operating Cost $48.22 per tonne milled Start-up Capital Cost US$124.3 million Net Cashflow US$223.6 million NPV (8%) US$141.8 million NPV (12%) US$113.1 million IRR 54% Payback Period Slightly more than one year

It should be noted that there have been no feasibility studies in support of mining or mine development in the G-9 deposit. The preliminary financial results summarized on Table 3.3 must, therefore, be considered in the context of a Preliminary Assessment. Furthermore, the reader is cautioned that the results are based on the use of the Company’s Inferred resource estimates that are considered geologically speculative. There is no guarantee that either the resources will be upgraded to reserve status or that the calculated project returns will ever be realized. Mineral resources that are not mineral reserves do not have demonstrated economic viability.

The robustness of the preliminary financial results was explored using sensitivity analyses to examine the impact of varying the capital costs, operating costs and zinc metal prices. The results are presented on Tables 3.4 to 3.6, inclusive.



Table 3.4 Sensitivity Analysis (NPV[0], in US$ millions) of Capital and Operating Costs

Variable Changed -20% -10% 0% 10% 20% Operating Cost 253.1 238.4 223.6 208.9 194.1

Capital Cost 255.6 239.6 223.6 207.6 191.6

Table 3.5 Sensitivity Analysis (IRR) of Capital and Operating Costs

Variable Changed -20% -10% 0% 10% 20% Operating Cost 58% 56% 54% 52% 51%

Capital Cost 72% 62% 54% 47% 41%

Table 3.6 Sensitivity Analysis of Zinc Metal Prices

Variable -20% -10% 0% 10% 20% NPV (0), in US$ millions 135.1 179.4 223.6 267.8 312.1

IRR 37% 46% 54% 62% 69%

The following statement relates to the implications of work completed since the effective date for this Technical Report (September 23, 2007): Following discussions with the Company and a review of publicly released information, MineFill does not anticipate any material changes to the scope of the G-9 project that might render the results of the September 2007 cashflow model unrepresentative.

3.10 Conclusions and Recommendations

The Company’s continued parallel-track development of the G-9 project is supported. The approach may be justified from consideration of:

• the robust metallurgical results for G-9 mineralization over four programs;

• the VMS nature of the deposit (VMS deposits tend to be consolidated into discrete, sulphide-rich lenses in which regular metal zoning rarely occurs);

• the lateral persistence of the mineralized grades intersected thus far (September 2007);

• the history of G-9 exploration drilling (that has consistently resulted in additional resource tonnes at ever-higher average resource grades); and

• the robust financial returns reflected by the results of MineFill’s preliminary assessment.



Infill and step-out surface drilling should continue to concentrate on more fully defining the G-9 deposit. However, other potential opportunities to the north of San Raphael fault, in what appears to be a stratigraphic horizon below the previously identified VMS deposits (i.e. at the same apparent stratigraphic horizon as the G-9 deposit), should not be overlooked. The last point is emphasized because the Campo Morado project area has many of the characteristics of a growing VMS/base metal district in which additional resources and/or new deposits might yet be found. In view of this, MineFill supports the continuation of the Company’s program to advance the G-9 Project through to the end of March 2008 and concurs with the Company’s G-9 technical program to end March 2008 (Table 3.7).

Table 3.7 Summary of The Company’s Planned Technical Program, October 2007

to end March 2008, G-9 Project Activity Period Objective Infill surface exploration drilling at 25 metre spacings into the North Zone

October 2007 to end February 2008

To facilitate upgrade of resources to the Measured and Indicated categories

Step-out and infill surface exploration drilling at 25 metre spacings into the Abajo Zone

January 2008 to end February 2008

To allow Measured and Indicated resources to be estimated

New target drilling at 50 to 100 metre spacings, to the north of G-9

March 2008 To explore for additional, G-9 mineralized occurrences

Decline advance October 2007 to end March 2008

To facilitate underground drilling and to thereby facilitate the definition of a mineral reserve base

Resource Estimation December 2007 and March 2008

To update November 2006 resource estimates (Sub-Section 19.2)

Mine planning, engineering, economic evaluation and reporting to at least pre-feasibility level

January 2008 to end March 2008

To facilitate production decision, based on Southeast, Southwest and North Zone mineral resources

The all-in estimated cost for the Company’s G-9 technical program summarized on Table 3.7 is US$24.89 million. The project budget proposed in the G-9 Technical Report dated December 2006 comprised a C$55 million program, including surface and underground drilling, access decline development, metallurgical testing and mine planning. MineFill has reviewed the budget and what has been completed to date (September 2007). It is anticipated that the December 2006 budget will cover the costs of the G-9 underground access, surface exploration and site preparation programs through to early 2008. It is further anticipated that studies will continue beyond the end of March 2008.



4 INTRODUCTION

This report is entitled ‘Technical Report on the 2007 Program at the G-9 Deposit, Campo Morado Project, Guerrero State, Mexico’ (this “Technical Report”); the data cut-off date is September 23, 2007. It has been prepared for Farallon Resources Limited (the “Company”) with the purpose of:

• providing a NI 43-101 compliant report on the G-9 deposit, which forms part of the larger Campo Morado Project;

• documenting the results of the Company’s drilling and metallurgical testing programs carried out since the December 2006 Project report; and

• fulfilling Part 4.2 (1) (j) (i) of National Instrument (“NI”) 43-101 (obligation to file a Technical Report in connection with a written disclosure about a mineral project).

The Company is based in Vancouver, British Columbia, Canada. It is listed on the Toronto Stock Exchange (trading symbol: FAN) and it trades in the United States on the Over-the-Counter Bulletin Board (trading symbol: FRLLF). The Company is engaged in exploration and mine development in the Campo Morado Project area (the “Project area”), which comprises the Company’s only material mineral property.

The Campo Morado Project is located some 160 kilometres south-southwest of Mexico City, in the Sierra Madre del Sur range. The Project area comprises 11,813.9 hectares in six mining concessions in which the Company holds a 100 percent interest through its wholly owned Mexican subsidiary Farallon Minera Mexicana S.A. de C.V. (“Farallon”).

4.1 Qualified Persons

The Qualified Persons (authors) of this Technical Report are:

Dr. David Stone, P.Eng., Consulting Engineer and President of MineFill Services, Inc., Vancouver, British Columbia. Dr. Stone is a co-author of this Technical Report. He provided technical oversight during the preparation of this Technical Report and discussed the approach regarding the preliminary assessment presented in Section 20;

Mr. Stephen Godden, F.I.M.M.M., C.Eng., Consulting Engineer, Director of SGA Limited, Welwyn Garden City, UK and Associate of MineFill Services, Inc. Mr. Godden is the principal author of this Technical Report. He is responsible for compiling all the report sections, for reviewing previous reports, documents and news releases and for verifying the information by means of due diligence, in part through discussions with the professionals who completed studies on the G-9 project. He prepared the preliminary assessment presented in Section 20 of this Technical Report.



Mr. David Gaunt, P.Geo. – Geologist and Manager of Resources for Hunter Dickinson Inc. from May 2000 to present, during which time he has been responsible for assay certificate and drill database verification, three-dimensional deposit modelling, geostatistical modelling, resource estimation and completion of the G-9 resource estimate.

4.2 Site Visits by the Authors

David Stone, P.Eng., visited the Campo Morado Project on numerous occasions since 1996; his last visit was in February 2004. Mr. Stone’s past involvement with the Campo Morado Project included the preparation of preliminary mining scoping studies and managing the preparation of engineering studies for mining the Naranjo and Reforma deposits.

Stephen Godden, F.I.M.M.M., C.Eng., visited the Campo Morado Project between June 19 and June 21, 2007. During the visit he toured the G-9 Project site, reviewed the project plans, visited the G-9 underground excavations, observed the on-going drilling program, examined core, examined geology plans and sections and held discussions with Farallon staff members. Mr. Godden made several visits to the Company’s head office in Vancouver between June 22 and June 29, 2007 to discuss a broad range of Project-related issues with Company staff members and to collect and collate Company information about the Campo Morado Project.

David Gaunt, P.Geo., has visited the Campo Morado Project on numerous occasions in his capacity of Manager of Resources for Hunter Dickinson Inc. His last site visit was made between October 24 and 28, 2005.

4.3 Data Sources

Portions of Sections 6 to 11 of this Technical Report were compiled by MineFill Services Inc. (“MineFill”) from the following NI 43-101 compliant Technical Reports, following their review (both of the listed reports are filed on www.sedar.com):

• ‘Technical Report on the Campo Morado Project, Guerrero State, Mexico’ by D. Kilby, P. Taggart and Q. Deng and dated June 24, 2005 (the “June 24, 2005 Technical Report”); and

• ‘Technical Report on the Campo Morado project, Revised Update on Exploration, Resources and Metallurgical Activities for the G-9 Deposit, Guerrero State, Mexico’ by R. Banner, D. Gaunt, D. Kilby, P. Taggart, Q. Deng and D. Dreisinger and dated December 13, 2006 (the “December 13, 2006 Technical Report”).

The current G-9 resource estimate was reported by the Company in the December 13, 2006 Technical Report and in the Company’s November 14, 2006 news release. Portions of the December 13, 2006 Technical Report repeat or directly reference information contained in the June 24, 2005 Technical Report. The following Qualified Persons were responsible for those portions of the December 13, 2006 Technical Report that are relevant to the G-9 Project:



Daniel Kilby, P.Eng. – Geologist and site manager for the Company’s/Farallon’s exploration program from November 1995 to October 1998 and from August 2004 to present, during which time he has overseen local and regional geological reconnaissance on the Campo Morado Project area, as well as diamond drilling, core logging, sampling, sample security and sample integrity.

Qingping Deng, Ph.D., C.P.G. - Behre Dolbear’s Vice President of US Operations and Global Director of Ore Reserves and Mining Planning. Mr. Deng was responsible for the data verification and resource estimates for the El Largo, El Rey, Naranjo and Reforma deposits.

Peter Taggart, P.Eng. – Consulting Metallurgist and Principal, P. Taggart & Associates Limited. Mr. Taggart has provided metallurgical assistance to the Company since 1997. Mr. Taggart has been responsible for directing flotation testwork on samples of El Largo, G-9, Naranjo and Reforma deposits.

This Technical Report is also based on information provided by the Company, observations made during various site visits made by MineFill and various documents and reports, including documents sourced by means of a web search. The key documents referenced herein include:

• a consultancy report to the Company by Laura Diaz Nieves of Diaz Nieves and Bouchot entitled ‘Farallon Minera Mexicana, S.A. de C.V. Mining Concessions’ and dated August 15, 2006;

• a document by Baker & McKenzie entitled ‘Mining Law in Mexico: An Overview’ (source:www.bakernet.com/NR/rdonlyres/9D4AA2AF-D856-4ECC-828A-D306D05A2564/ 40322/MiningLawinMexBron1.pdf);

• the Company’s Form 20-F to the United States Securities and Exchange Commission, Washington D.C. 20549, dated June 30, 2006;

• a document entitled ‘Overview of the Environmental Laws of Mexico’ by Haight, Brown & Bonesteel LLP (source: www.natlaw.com/pubs/spmxen13.htm);

• a document by Biologist J. Ricardo Juárez Palacios, of the Mexican Secretariat of Environmental and Natural Resources (Secretaría de Medio Ambiente y Recursos Naturales, or SEMARNAT), to Farallon that is dated March 29, 2007;

• G&T Metallurgical Services Limited (“G&T Services”) report number KM 1881 (Report #3) to the Company entitled ‘An Assessment of the Metallurgical Response for the G-9 Master Composite, Farallon Resources Ltd, Campo Morado Project, Guerrero State, Mexico’ and dated October 4, 2006;

• G&T Services report number KM 1951 (Report #4) to the Company entitled ‘An Assessment of the Metallurgical Response for the High Grade Master Composite, Farallon Resources Ltd, Campo Morado Project, Guerrero State, Mexico’ and dated April 18, 2007;

• Advanced Mineral Technology Laboratory report to the Company entitled ‘Deportment of Gold and Silver in Campo Morado Zinc Rougher Tails’, dated October 3, 2006”;



• SGS Lakefield Research Limited Project 11335-001 report to the Company entitled ‘An Investigation into an Innovative Grinding System for the Campo Morado Circuit Based on Small-Scale Data’ that is dated October 4, 2006;

• a project memorandum by Xstrata Technology to the Company entitled ‘Isamill Circuit Design for Campo Morado’ and dated October 23, 2006;

• McIntosh Engineering Inc. consultancy report for the Company entitled ‘Campo Morado, G-9 Scoping Study Report’ dated August 31, 2006;

• various internal Company documents, prepared by Company/Farallon staff members, that deal with the Company’s environmental and socio-economic programs; and

• various Company news releases filed on www.sedar.com.

MineFill has relied on data and information derived from work completed by Farallon, the Company’s consultants and various data sources. Although MineFill has reviewed most of the available data and has made various site visits (the latest in June 2007 – Sub-Section 4.1), these tasks validate only a portion of the entire data set. MineFill has also assumed the data contained in the above listed reports is both accurate and valid, which assumption is based on the professional status of the reports’ authors and the nature of their reports.

5 RELIANCE ON OTHER EXPERTS

The Campo Morado concession information presented in this Technical Report is based on a title opinion by Laura Diaz Nieves, as detailed in the above listed report by Diaz Nieves and Bouchot and dated August 15, 2006. MineFill has made no attempt to verify the legal ownership or title to the Campo Morado Project area and MineFill is not qualified to assess the validity of the Company’s concessions in Mexico.

MineFill is not qualified to assess environmental issues in Mexico and has made no attempt to comment on, verify or assess environmental issues or liabilities on the Campo Morado Project area. MineFill can report on observations made during its site visits only, as well as issues that Minefill is made aware of by the Company/Farallon, but this should not be considered a comprehensive overview of the environmental issues. An environmental impact manifest (Manifestación de Impacto Ambiental, or MIA-P) has been prepared for the Company/Farallon by Corporación Ambiental de México, S.A. de C.V. (Project CAM05009 entitled ‘Proyecto de Explotación y Beneficio de Minerales Campo Morado, Municipio de Arcelia, Guerrero’, dated October 2006 and written in Spanish as Mexican Law requires).



6 PROPERTY DESCRIPTION AND LOCATION

Farallon Resources Limited (“the Company”) is engaged in exploration and mine development in the Campo Morado Project area (the “Project area”), which comprises the Company’s only material mineral property. The Company, through its wholly owned Mexican subsidiary, Farallon Minera Mexicana S.A. de C.V. (“Farallon”), holds a 100 percent interest in Campo Morado Project.

6.1 Property Location

The Project area is centered on Latitude 18° 12’ South and Longitude 100° 08’ West, which is in the Sierra Madre del Sur range in the north-eastern part of Guerrero State, Mexico, in the Municipality of Arcelia. The Project area is approximately 160 kilometres south-southwest of Mexico City (Figure 6.1).

Figure 6.1 – General Location Maps

6.2 Mineral Rights

The Project area comprises 11,813.9 hectares in the six mining concessions listed on Table 6.1. Figure 6.2 is a plan of the concessions, in UTM co-ordinates. The concessions are reported by the Company to be in good standing. The reader is, however, advised that the boundaries of the concession blocks have not legally been surveyed.



Table 6.1 Campo Morado Project Concessions held by Farallon Resources Limited, through its

wholly owned Mexican subsidiary Farallon Minera Mexicana S.A. de C.V.

Concession Name Title

Number File

Number Area

Hectares Date

Issued Expiry Date

Reducción La Alina Campo Morado 2A Reducción Farallon Reducción El Mil La Trinidad Farallon 2

219148 213074 218979 219874 210718 227412

5/2.4/659 5/1.3/00561

05/1/693 5/1/720

DGM/CO2/99.9 33/9731

4,631.000 1,111.000 1,820.925 1,250.000 2,750.000 251.000

14 Feb. 2003 02 Mar. 2001 28 Jan. 2003 29 Apr. 2003 17 Nov. 1999 16 Jun. 2006

13 Feb. 2051 01 Mar. 2051 27 Jan. 2053 28 Apr. 2053 16 Nov. 2049 15 Jun. 2056

Total - - 11,813.925 - -

Note: Prior to March 02, 2001 the original Exploitation Title of La Alina mining concession was issued under Title number 213073. Due to an application of reduction to the surface area of the La Alina concession on February 14, 2003, it was issued with a new title (Reducción La Alina), which is the reason why the effective period for the mining concession is not 50 years, as the Mining Law of Mexico provides (Sub-Section 6.3.3).

Figure 6.2 – Concession Plan, in UTM Co-ordinates



The information presented on Table 6.1 and its subsequent text was compiled by MineFill from the December 13, 2006 Technical Report. Key information was checked by cross-referencing both the aforementioned report by Diaz Nieves and Bouchot dated August 15, 2006 and the Company’s aforementioned Form 20-F to the United States Securities and Exchange Commission dated June 30, 2006.

Figure 6.2 reflects the fact that five primary mineral deposits (El Largo, El Rey, G-9, Naranjo and Reforma) have been identified in the Campo Morado concession block, along with a number of other, less well-defined mineralized occurrences. Various gravity anomalies have also been identified in the same, broad mineralized trend. Farallon geologists have reported there is a weak link/poor correlation between the gravity anomalies and mineralized occurrences; the anomalies are not considered further.

Figure 6.3 summarizes the known mineral deposits and occurrences in more detail. The metals with economic potential include gold, silver, copper, lead and zinc (not listed in order of economic significance). The G-9 deposit is the primary target for current project development and it is the technical details of the G-9 deposit that are the main focus of this Technical Report. There are no historical mine workings on the G-9 deposit.

Figure 6.3 – Deposits’ Location Plan

6.2.1 Campo Morado and Reducción La Alina Concessions

The following text, as well as the text contained in Sub-Sections 6.2.2 and 6.2.3, was compiled by MineFill from the December 13, 2006 Technical Report. Key information was checked by cross-referencing both the aforementioned report by Diaz Nieves and Bouchot dated August 15, 2006 and the Company’s aforementioned Form 20-F to the United States Securities and Exchange Commission dated June 30, 2006.



Pursuant to an option agreement (the “Option Agreement”), finalized in January 1996, among Sres. Alvaro J. Villagrán Garcia, J. Pedro Villagrán and J. Pedro Villagrán Ochoa (collectively the “Villagráns”) and their company Minera Summit de Mexico S.A. de C.V. (“Minera Summit”), as optioner, and Farallon, as optionee, Farallon was granted the exclusive option (the “Option”) to acquire from Minera Summit a 100 percent interest in the Campo Morado and La Alina exploration concessions. The Option Agreement was negotiated at arm’s length because the Villagráns were not directors, officers or significant shareholders at the time of the negotiation of the Option Agreement. Subsequent to the signing of the Option Agreement the Villagráns were appointed to Farallon’s board of directors in 1998; the Villagráns remained on Farallon’s board until March 2002.

Minera Summit won the Campo Morado and La Alina concessions on October 31, 1994, in an open bid process. Interested parties were invited to propose an exploration program for the concessions, for consideration by the General Bureau of Mines (Dirección General de Minas, or “Bureau”). The Bureau considered the bids with a view to, among other things, the best interests of furthering the mineral wealth of Mexico. Minera Summit’s proposal was chosen and the Campo Morado and La Alina concessions were conditionally granted to it. Minera Summit’s agreement with the Mexican Mineral Resources Council (Consejo de Recursos de Minerales, or “CRM”) required a minimum expenditure of 14.7 million (Mexican) Pesos on staged exploration on the concessions, over a three-year period ending September 14, 1997. The expenditure requirement had been exceeded by January 1997.

Under the Option Agreement (hence to earn its 100 percent interest in the Campo Morado and La Alina concessions), Farallon was required to pay to Minera Summit the aggregate sum of US$1,235,388 in staged amounts (which aggregate amount has been paid) and issue 750,000 common shares of the Company (which shares have been issued). Farallon also completed a three-stage exploration program, which CRM required to satisfy the minimum expenditure requirements under Minera Summit’s agreement with CRM. The Company’s/Farallon’s expenditure on the required program totalled nearly US$2 million, which amount was well in excess of the required expenditures. CRM accepted the transfer of title of the concessions from Minera Summit to Farallon on January 10, 1997.

Under the terms of the Option Agreement, if and when Farallon completes a feasibility study with respect to the Campo Morado and La Alina concessions (the “Feasibility Study”), the Company will be obligated to issue to Minera Summit up to 750,000 additional common shares of the Company. The number of shares to be issued will be based on the value of the Campo Morado and La Alina concessions, as assessed in an independent calculation of the property’s Recoverable Gold Equivalent Ounces from the Feasibility Study. For these purposes, the term “Recoverable Gold Equivalent Ounces” means economically recoverable, net payable, gold ounces after smelting deductions for gold and silver ounces (with silver ounces converted to the gold equivalent at the then-prevailing prices for gold and silver) from any mineable reserves on the property and any other property owned by Farallon within a defined Area of Influence (as defined in the Option Agreement and which includes all concessions comprising the Campo Morado Project).

The Option Agreement also acknowledges that the Campo Morado and La Alina concessions could be subject to moral claims of some previous investors, who had invested money in certain private companies that had sought an interest in Campo Morado prior to the



Company’s/Farallon’s involvement. In 1996, Farallon purchased 97 percent of the shares of the private companies from those investors, for an amount totalling approximately US$578,000. Farallon also agreed to waive Minera Summit’s obligation to contribute one-half of the private company share purchase amount, as a consideration for continuing and future assistance being provided to Farallon by the Villagráns in Mexico and for Minera Summit consenting to Farallon acquiring all the private company’s shares. All of the investors in the defunct private companies were at all times at arm’s length to the Company/Farallon.

6.2.2 La Trinidad Concession

Farallon won the La Trinidad concession on November 16, 1999, in an open bid process. Interested parties were invited to propose a purchase price for consideration by the Bureau, which proposals would be reviewed to, among other things, determine the maximum bid and to ensure that the bid exceeded the minimum level set by the Bureau. Farallon’s bid was chosen and the concession was granted to Farallon. The purchase price of the concession was US$150,000, of which 60 percent (US$90,000) was paid on November 16, 1999. The balance (US$60,000) was paid before November 16, 2000.

6.2.3 Reducción El Mil, 2A Reducción Farallon and Farallon 2 Concessions

On June 29, 2001, Farallon filed an application before the Mining Agency in Puebla, Mexico, to obtain a reduction of the surface area of El Mil exploitation concession, to a new surface area of 1,250 hectares. The application was admitted by the Mining Agency under File Number 05/2.4/612. On August 23, 2002 Farallon was issued Exploration Title 214969 for the re-named Reducción El Mil concession. Following the amendment to the Mining Law of April 28, 2005, distinctions were no longer made between the exploration and exploitation concessions - mining concessions only were deemed to exist and the Title Number for the Reducción El Mil mining concession was changed to 219874.

Farallon filed an application to reduce the Farallon concession from 14,145 hectares to 5,345 hectares in 1999; on May 31, 2000 the new exploration title (211550) for the renamed Reducción Farallon concession was received. On June 29, 2001, Farallon filed an application before the Mining Agency in Puebla, Mexico, to obtain a reduction of area with respect to the Reducción Farallon mining claim, from 5,345 hectares to 1,820 hectares, with the new name of 2A Reducción Farallon. The application was admitted under File Number 05/2.4/613 of the Mining Agency. On January 28, 2003, Farallon was issued Exploitation Title 218979 for the 2A Reducción Farallon concession. Following the amendment to the Mining Law of April 28, 2005 the File Number for the 2A Reducción Farallon mining concession was changed to 05/1/693.

The Farallon 2 concession (Title Number 227412) was acquired by Farallon on June 16, 2006.

6.3 Mining Law

The following text, as well as the text contained in Sub-Sections 6.3.1 to 6.3.5, inclusive, was compiled by MineFill from the aforementioned document by Baker & McKenzie and the aforementioned report by Diaz, Nieves and Bouchot dated August 15, 2006, the validity and



accuracy of which MineFill is not qualified to assess. However, following a web search for, and consideration of, various available documents, Minefill concluded that the cited documents probably fairly reflect the current status of Mexican Mining Law.

6.3.1 Legal Framework

The Mining Law was originally published in the Federal Official Gazette on June 26, 1992. The section regarding bids was amended on December 24, 1996. Amendments to a number of other sections were enacted on April 28, 2005.

Article 27 of the Mexican Constitution states that the lands and waters within the national territory originally belong to the Mexican United States (Mexico) and that Mexico has the right to transfer the title thereto to private persons to thereby constitute private property. Article 27 also provides that Mexico has direct ownership of mineral deposits within the national territory, which cannot be transferred. The use and exploitation of such national resources by private parties is only permitted by means of concessions granted by the Mexican Federal Executive Branch, through its corresponding government agencies.

6.3.2 Government Agencies

The Mining Law is a federal statute that governs the grant, use, cancellation and expiration of mining concessions, hence all mining matters pursuant to Article 27 of the Constitution. The Ministry of Economy (Secretaria de Economia, or “Ministry”) has the authority and regulatory powers to enforce compliance with the Mining Law. The Ministry exercises its legal authority through its Mining Division (Coordinación General de Mineria, or “CGM”), a central agency established by the internal regulations of the Ministry. The CGM in turn relies on the Bureau.

The main responsibilities of the Bureau include the management and control of mining concessions. For such tasks, the Bureau relies on the support of various subordinate agencies, including the Public Registry of Mining (the “Registry”). The main purpose of the Registry is to record concessions, allotments, agreements, arrangements and administrative actions that might affect mining rights. Any act or agreement required by law to be registered with the Registry is binding on third parties and on the Ministry only when publicly recorded at the Registry.

The Mexican Geological Service (Servicio Geologico Mexicano, or “SGM”) is a decentralized entity, with independent legal capacity, that is coordinated by the Ministry, under Article 9 of the Mining Law. SGM is required, in part, to identify and record the potential mineral resources of Mexico, to assist the government with the promotion and development of such resources and to determine which resources should be made available as concessions. Prior to the amendment to the Mining Law of April 28, 2005, SGM was called the Mineral Resources Council (Consejo de Recursos de Minerales), under which title it dealt with the Company’s/Farallon’s concessions, as earlier described.

6.3.3 Foreign Investment

During December 1990, the country’s changed economic and political climate resulted in a more transparent definition of the scope of power granted to government authorities. Unnecessary



obligations and procedures for mining concessions were also eliminated. As part of these changes, foreign capital was authorized to participate in 100 percent of the stock of mining corporations/companies, once they were incorporated as Mexican entities. In other words, it is possible for Mexicans to acquire the mining concessions on their own behalf. However, foreigners are required to do so thorough a Mexican mining corporation that they have to set up. Mexicans as well as foreigners are both permitted to acquire up to 100 percent of the Mexican (mining) company they set up in order to hold mining concessions. In this regard, it is stated the aforementioned report by Diaz, Nieves and Bouchot dated August 15, 2006 that:

“Farallon (Minera Mexicana S.A. de C.V.) is a Mexican mining company duly incorporated in accordance with Public Instrument number 68,245 dated November 10, 1994……”; and

“Farallon (i) has a corporate purpose that refers to the exploration and exploitation of minerals or substances subject to the application of Mining Law; (ii) has its legal domicile in the Mexican Republic; (iii) participation of foreign investors is adjusted to the provisions of the Foreign Investment Law; (iv) has all requisite corporate power and authority to conduct its business now carried on by it; and (v) is duly registered or licensed to carry out business in Mexico.”

6.3.4 Concessions

Concessions are granted over free land, pursuant to the first in time, first right principle, which establishes that the first person to request a concession over a portion of land will have the right to the same, provided all other requirements under the Mining Law and its associated regulations are met.

Following the amendment to the Mining Law of April 28, 2005, no distinction is made between exploration on and exploitation of mining concessions. The amendment to the designation of a single type of mining concession (exploration and exploitation) was conditioned to the publication of the amendment to the Federal Fees Law (Lay Federal de Derechos) in connection with fees payable by mining concessions holders, which amendment was published on December 21, 2005. Current mining law therefore allows a concession owner to perform:

• exploration works on the ground to identify mineral deposits and quantifying and evaluating economically viable reserves and accordingly perform work to develop areas containing mineral deposits; and

• exploitation works to detach and extract minerals from such deposits.

Mining concessions may be obtained either through a public bid or by an application process filed by the interested party before the relevant mining agency. Public bids apply when either the government considers it necessary to exploit certain mining reserve areas or as a result of the cancellation of mining allotments granted to the SGM, who had carried out prior exploration works.



Mining concessions are valid for 50 years from the date of their registration at the Registry. They may be extended for an equal term if the holder: does not cause cancellation of the concession by any act or omission defined in the Mining Law; and requests an extension within five years prior to the expiration date. They confer rights with respect to all minerals covered and provided for by Article 4 of the Mining Law, including gold, silver, copper, lead and zinc found in veins, mantles, masses or deposits.

6.3.5 Surface Rights and Obligations

Mining concession licenses do not grant rights comparable to a freehold or leasehold, given that they do not confer property rights to the parcel of land involved, except for the rights to carry out works and development required of and for mining and related activities. Farallon is not restricted in this regard because the titles to the relevant blocks of land (or hacienda, which in this case cover the Project area) have been purchased by Farallon.

6.3.6 Mining Obligations

The obligations with which the holders of mining concessions must comply in order to maintain their concessions in full force and effect, pursuant to the Mining Law of Mexico and the Federal Fees Law, are: Assessment of Work Report – during May of each year, the concession holder must file Work Assessment Reports with the Bureau, for each concession or group of concessions for the preceding calendar year. The regulations of Mexican Mining Law establish the minimum investment amounts that must be made on a concession. The amounts vary annually, according to variations in the Mexican Consumer Price Index. Mining Duties – during January and July of each calendar year, concession holders must pay the mining duties for the areas that pertain to each concession, on a hectare basis, and file before the Bureau evidence of payment during February and August of the same year that the payments are made. Production Report – during the first 21 labor days of each calendar year, the concession holders must file Production Reports with the Bureau, compiled for each concession or group of concessions for the preceding calendar year. The Company has verbally reported to Minefill that the various required reports and duties for the Campo Morado Project are in good standing. In the opinion of the author of this Technical Report, there is no readily identifiable reason to suppose that the Company’s claim is incorrect.

6.4 Taxes and Royalties

Table 6.2 summarizes the main corporate, value added and payroll taxes that are currently applicable in Mexico (as at September 2007). Tax treaties exist between Mexico and both the United States and Canada.



Table 6.2 A Summary of the Mexican Tax Regime

Tax Category

Payments(number)

Statutory Tax Rate

Tax Base

Corporate Income Tax Asset Tax Value Added Tax (VAT) Social Security Tax (IMSS) Housing Tax (INFONAVIT) Premium for Occupational Risk Local Tax

1 1

12 12 6

12 1

35% (maximum) 1.8% 15%

16.7% 5%

Various Various

Taxable profits Asset value Value added Gross salaries Gross salaries Gross salaries

- Sources: www.mexicolaw.com/LawInfo18.htm; www.solutionsabroad.com/d_mexicantaxlaw.asp

Under the terms of the Option Agreement between Farallon and Minera Summit regarding the Campo Morado and Reducción La Alina concessions (Sub-Section 6.2.1), Farallon is subject to what is effectively a sliding scale, three percent net profits royalty to a government entity. The Bureau retains a sliding scale, two percent net profits royalty on the La Trinidad concession. Royalty payments on the Reducción El Mil, 2A Reducción Farallon and Farallon 2 concessions have yet to be defined. The Company has verbally advised MineFill that there are no other royalties, back-in rights, payments or other agreements and encumbrances to which the Property is subject.

6.5 Metal Sales

There are no reported Government restrictions or constraints on the exporting and/or sale of concentrates or metals that do not contain radioactive material.

6.6 Environmental Regulations

The following text, as well as the text contained in Sub-Sections 6.6.1 and 6.6.2, was compiled by MineFill from the aforementioned document by Haight, Brown & Bonesteel LLP and the aforementioned document by Biologist J. Ricardo Juárez Palacios dated March 29, 2007. MineFill is not qualified to assess the validity or accuracy of the cited documents. However, following a web search for, and consideration of, various available documents, Minefill concluded that the cited documents probably fairly reflect the current status of Mexican Environmental Law.

6.6.1 Legal Framework

The North American Free Trade Agreement (NAFTA) addresses the issue of environmental protection in the three participating countries (Canada, Mexico and United States). However, it leaves the establishing of environmental rules and standards to the three participating countries, with two exceptions: they are to comply with existing treaties; and they are not to reduce their environmental standards as a means of promoting investment in business.



Mexican Environmental Law is defined in the General Law of Ecologic Equilibrium and Environmental Protection (Lay General de Equilibrio Ecológico y Protección al Ambiente, or

“LGEEPA”). In its first draft (effective March 01, 1988) it comprised Mexico’s first comprehensive environmental law. It was amended ten times between 1996 and February 2007.

LGEEPA establishes the framework and authority for all environmental regulations in Mexico. It addresses a broad range of environmental issues, including the protection of natural areas, exploitation of natural elements (including land and water) and protection of the environment (including atmospheric pollution, water and soil pollution), hazardous activities and waste, nuclear energy and other forms of pollution. LGEEPA also defines control and safety measures, penalties for non-compliance and guidelines for environmental impact statements and risk assessment.

6.6.2 Government Agencies

Mexico’s primary federal environmental agency is the Secretariat of Environmental and Natural Resources (Secretaría de Medio Ambiente y Recursos Naturales, or “SEMARNAT”), which agency has sole jurisdiction over the development enforcement, administration and control over Mexico’s environmental laws and standards. It fulfils its roles through various decentralized administrative departments, including:

• National Institute of Ecology (Instituto Nacional de Ecologia, or “INE”) that is responsible for ecological matters and the protection of the environment by means of developing environmental programs, issuing administrative orders and standards, determining the adequacy of environmental impact statements, co-ordinating the development of environmental programs with state agencies and granting federal approval on environmental impact studies);

• National Water Commission (Comisión Nacional del Agua, or “CAN”) that is responsible for the administration and safekeeping of national waters and related property such as wetlands, marshes and beaches, overseeing compliance with the Law of National Waters (Ley de Aguas Nacionales, or “LAN”), issuing orders necessary to ensure the preservation and quality of the national waters, overseeing concessions and waste water discharge permits affecting national waters; and

• Federal Agency for the Protection of the Environment (Procuraduría Federal de Protección al Ambiente, or “PROFEPA”) that is responsible for enforcing the law, for investigations and inspections of facilities and for reporting violations to the Federal Prosecuting Attorney (Ministerio Público Federal).

6.6.3 Environmental Studies

Exploration Phase - At the time of the exploration phase for certain mineral projects, such as Campo Morado, LGEEPA requires a concession holder to submit a preventative report, prepared by an independent registered environmental consultant, to INE before the concessionaire commences exploration activities. The report provides the government with the concessionaire’s



plans for developing the project and sets out actions it will take to minimize impacts on the environment. INE reviews the preventative report to ensure that the information fulfils the requirements of LGEEPA. Once the report is approved a permit is granted and issued by SEMARNAT.

Development Phase - Article 30 of LGEEPA establishes that to obtain authorization for the ‘execution of works and activities that may cause an ecological disequilibrium or exceed the limits and conditions established in the applicable provisions’ …… in law, interested parties must submit to SEMARNAT an environmental impact manifest (Manifestación de Impacto Ambiental, or “MIA-P”), written in Spanish. Documentation in support of a change of land use to allow construction and mining activities is also required (specifically a Change of Use of Soil [Cambio de Uso de Suelo, or “CUS”]).

Mining Phase – Formal mining/ore extraction requires, among other things: water discharge permits, hazardous waste management permits and emission permits; social, anthropological and archaeological studies; and the posting of reclamation and reforestation bonds. Permitting issues can be addressed in a project MIA-P. Appropriate studies can separately be carried out, under the auspices of the relevant government agency.

6.7 Permits

The following text, as well as the text contained in Sub-Sections 6.7.1 to 6.7.3, inclusive, was compiled by MineFill following discussions held with various Company/Farallon staff members, from relevant portions of the December 13, 2006 Technical Report and from the aforementioned document by Biologist J. Ricardo Juárez Palacios dated March 29, 2007. Cross-references were made to various Company new releases that are cited in the following text.

6.7.1 Exploration Activities (including preliminary mine development)

The original environmental permit for the Campo Morado Project was granted on April 02, 1995. It has since been renewed and modified on an annual basis, during the periods that the Company/Farallon has been active on the Campo Morado Project area. The most recent extension was granted to October 2007. Further renewals depend on Farallon continuing to adhere to the requirements of LGEEPA, which adherence is assessed by SEMARNAT by means of three-monthly progress and disturbance reports submitted by Farallon. It is anticipated that Farallon will apply for the next annual renewal of the current exploration permit at the appropriate time; a renewed permit will allow the Company’s current exploration activities to continue to December 2008.

The existing environmental permit covers the Campo Morado Project during the exploration phase only, which exploration can include limited underground development for purposes of deposit definition drilling (including a decline access). It also covers certain disturbances, including: rehabilitation of old roads and underground workings; the development of new access roads, camp and other facilities; and the development of exploration pits, surface drilling pads, underground drilling pads, surface and underground drillholes. The permit prohibits hunting or collection of flora and fauna. The permit requires compliance with noise and air pollution standards, reclamation of abandoned areas, storage of spent lubricants until they are shipped to a



recycling facility, reclamation of any oils or fuel spills and the preparation of an endangered species and reforestation study.

Farallon is conducting its current exploration and underground development work in compliance with the Campo Morado environmental permit. On June 7, 2006, SEMARNAT confirmed that the then existing Campo Morado permit was sufficient for the purposes of the proposed work plan going forward, including surface road works (cutting new roads and rehabilitating old/disused roads), underground development, surface and underground drilling.

6.7.2 Construction Phase

Farallon’s MIA-P submission, in support of the construction phase of project development (in Spanish, by Corporación Ambiental de México, S.A. de C.V. and dated October 2006), were submitted to SEMARNAT on October 26, 2006. A copy of the original report has been seen by MineFill; its submission is confirmed in the permitting letter to Farallon from SEMARNAT dated March 29, 2007 (i.e. the aforementioned document by Biologist J. Ricardo Juárez Palacios of SEMARNAT). The required documentation for application of a CUS permit has also been submitted by Farallon.

Farallon’s MIA-P was accepted, with certain conditions (Table 6.3), by SEMARNAT in a letter dated March 29, 2007 (see the Company’s news release dated April 23, 2007). A so-called MIA permit was as a result issued to Farallon, which permit allows for full mine and mill construction at the G-9 project. The MIA permit is valid in perpetuity, unless Farallon violates the conditions set out by SEMARNAT or the scope of the permitted project changes. For the latter case, the MIA-P would have to be modified and re-submitted. It is anticipated that in these circumstances Farallon would submit the relevant/required MIA-P documentation at the appropriate time.

Farallon’s application for a Change of Use of Soil has been accepted by SEMARNAT and a CUS permit has been received (see the Company’s news release dated June 06, 2007). This completes the necessary permit requirements for mine and mill construction work on and for the G-9 deposit. Power line construction will, however, require an additional government permit, following submission of a separate MIA-P. At the time of writing (September 2007), the Company had assessed its needs and had submitted an MIA-P in respect of power line construction. The MIA-P is currently (Sept. 2007) under regulatory review; it is anticipated that the Company will release details of the anticipated Permit at the appropriate time.

6.7.3 Mining Phase

Farallon’s MIA and CUS permits authorize the full operation of a mine and mill at the G-9 deposit. The MIA permit also covers water use. Farallon has not yet been asked to post a reclamation bond. On-going anthropological and archaeological studies are actively being carried out by Farallon staff members, through participation with the National Anthropological and Historical Institute (Instituto Nacional de Antropología e Historia, or “INAH”). An archaeological heritage study has been completed and Farallon’s efforts have been recognized by the Director of INAH, Guerrero State. Farallon is also currently designing projects in conjunction with the communities to reinvest funds paid by Farallon to the National Forestry Commission (Comisión Nacional Forestal, or “CONAFOR”).



Table 6.3 Applicable Environmental Standards, Campo Morado Project

Regulatory Instrument Comments

NOM-041-SEMARNAT-1999

It establishes the maximum permissible limits for the emission of contaminant gases from the leak from motor vehicles in circulation that use gasoline as fuel.

During the execution stages of the Project vehicles, equipment and heavy machinery will be used, which, as indicated by the Petitioner, will help in the actions intended to maintain the emissions to the atmosphere within the limits established by this standard.


It establishes the maximum permissible levels for the emission to the atmosphere of solid particles from permanent sources.

During the execution stages of the Project vehicles, equipment and heavy machinery will be used, which, as indicated by the Petitioner, will help in the actions intended to maintain the emissions to the atmosphere within the limits established by this standard.


It establishes the characteristics of hazardous waste, the list thereof and the limits that make waste hazardous due to its toxicity in the environment.

During the development of the activities of the Project hazardous waste will be generated, such as spent lubricant oils, tows with grease or lubricants, which will be stored temporarily in warehouses whose construction and operation shall meet the requirements established by the Regulations of the LGEEPA on Hazardous Waste matters and then transported by a company authorized for their handling and final disposal.


Environmental Protection-Native species of Mexico of wildlife-Risk categories and specifications for their inclusion, exclusion or change – List of species at risk. Published on March 6, 2002, in the Official Gazette of Mexico.

According to the information contained in the MIA-P and additional information, within the area of study of the project the following flora species are distributed: Dalbergia congestiflora with the category of endangered species and Dioon tomasellii and Licania arborea both with the category of threatened species. As regards the fauna, the petitioner indicated the existence of the following species: with the category of threatened species: Coleonyx elegans, Heloderma horridum (scorpion), Ctenosaura pectinata (iguana), Leptohis diplotropis (Pacific Coast Parrot Snake). And with the category of special protection species: Leptodeira annulata (mazacuata), Tantilla calamarina (Pacific Coast Centipede Snake), Trimorphodon biscutatus (mazacuata), Cratalus simus (Rattlesnake), Rhinoclemmys rubida (turtle) and Kinosternon integrum (turtle).

According to the foregoing, the petitioner must take actions intended for the conservation and protection of wildlife.


It establishes the maximum permissible limits for the emission of noise from permanent sources and their method of measurement.

During the mining stage of the minerals, noise will be generated inside the mine, which will not affect the surface and the use of the equipment and heavy machinery, and therefore the Petitioner stated in the MIA-P that it will take all the actions required to comply with the levels established in such standard.


It establishes the procedure for the characterization of the tailings, as well as the specifications and criteria for the characterization and preparation of the site, project, construction, operation and post-operation of tailings dams.

As stated by the Petitioner in the MIA-P, the project will build a tailings dam; and for that purpose, the petitioner applied the aforementioned standard to its project.

Note: the “Petitioner” is Farallon. Source: permitting letter to Farallon from SEMARNAT dated April 19, 2007



6.8 Environmental Liabilities

There exist historical underground mine workings on the Reforma and Naranjo deposits. On surface there exist several adit portals, waste spoil piles, smelter slag piles, mill and building foundations. Environmental liabilities exist as regards these historical workings and associated surface features, but MineFill is not qualified to assess these liabilities. The Company has contracted a specialist sub-consultant to address environmental liability issues. At the time of writing (September 2007) the results of the on-going study were not available.

7 ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE AND PHYSIOGRAPHY

Local topographic maps have been studied, a web search was carried out and various site visits have been made by MineFill (the latest in June 2007). Conversations have also been held with various Company/Farallon staff members, both on-site and at the Company’s Vancouver offices. The purpose in each case was to substantiate key elements of the text contained in the following Sub-Sections 7.1 to 7.6, inclusive. Portions of the text were compiled by MineFill from the December 13, 2006 Technical Report and from details of Farallon’s socio-economic and archaeological programs in the Campo Morado Project area. Cross-references were made to various Company news releases that are cited in the following text.

7.1 Topography, Vegetation and Elevation

Farallon’s exploration/administration camp at Campo Morado (Figure 7.1) is on a prominent ridge at 1,500 metres elevation, to the north of Campo Morado village. The terrain is characterized by deeply incised drainages and steep hillsides, with elevations ranging from 600 metres to 1,700 metres (Figures 7.2 and 7.3). The hillsides are covered by dry-land grasses, shrubs, cultivated fields and patches of scrub forests.

Figure 7.1 – Accommodation Blocks at the Campo

Morado Exploration/Administration Camp



7.2 Accessibility

The site is currently accessible from Mexico City by good quality, paved highways to approximately 30 kilometres west of Teloloapan village, from where a graded dirt road leads to the project site (Table 7.1). The total distance from the centre of Mexico City is approximately 310 kilometres, plus an additional 35 kilometres to the international airport. The dirt road is regularly maintained. Farallon has upgraded key portions of the dirt road where the gradient is either steep and/or prone to erosion during the wet season (Sub-Section 7.3).

Figure 7.2 – The Campo Morado District, Showing the Location of the Various Mineral Deposits (highlighted in red)

Figure 7.3 – A General View, Looking West, from Farallon’s Campo Morado Exploration/Administration Camp



Table 7.1

Access Roads from Mexico City to the Campo Morado Project Site From

To

Type

Number

Approximate Distance

Mexico City (via Cuernavaca)

Iguala Paved highway Highway 95 175 km

Iguala Dirt road turn-off Paved highway Highway 51 95 km Dirt road turn-off Campo Morado

exploration camp Graded dirt road - 38 km

Total Distance - - - 308 km

A second dirt road has been cut by Farallon to facilitate working access to the Campo Morado Project area. The road is now deemed a public road. It originates from the most convenient state highway (about 35 kilometres west of Arcelia), it is about 25 kilometres long, it passes through or near the most populous communities near the Campo Morado Project area and it is expected to be the lesser maintenance cost alternative. At the time of Minefill’s June 2007 site visit, the Arcelia dirt road was awaiting upgrades to its width and the detail of its line around bluffs, etc, the target completion date for which was September 2007. The planned upgrades exclude the replacement of one bridge that will be done on contract once the 2007 rainy season is over (i.e. during October or November 2007). The need for on-going maintenance of the access road is anticipated and planned.

At present, travel from Mexico City to the camp by road takes approximately six hours; helicopter access from the Mexico City heliport to the helipad at the Campo Morado exploration/administration camp site takes approximately one hour. Exploration roads, constructed by Farallon, provide access to each of the mineral deposits and showings, individual drilling sites, the mine portal, the mill site (that in June 2007 was under development) and the various camp sites (exploration/central offices, mining and construction). Pedestrian trails connect the numerous small communities and farms in the area. Disused site access roads are fully rehabilitated by Farallon.

7.3 Climate

The regional climate is characterized by alternate wet and dry seasons. The wet season extends from early June to October, during which time crops of corn, beans and squash are produced in cleared hillside areas. Individual rain storms can be heavy, but flooding problems are not experienced due to the nature of the topography. The dry season extends from November to May, during which time surface water disappears from most gullies. Surface water can, however, be found in numerous small springs, many of which are situated in or near limestone deposits around the general Project area.



7.4 Infrastructure

7.4.1 Surface Facilities

The Company has control over adequate surface lands for the construction of a mill, mine site and ancillary facilities. The Company has identified suitable sites for the construction of a water supply dam, tailing storage area, waste disposal area and processing plant.

7.4.2 Electricity

Electricity needs for the Campo Morado exploration/administration camp and G-9 mine workings are currently (September 2007) supplied by dedicated, on-site diesel generators. Farallon has recently signed an agreement with the Federal Electricity Commission (Comision Federal de Electricidad, or “CFE”) to supply power to the G-9 project site for purposes of mining and milling (see the Company’s news release dated June 06, 2007). The agreement includes provision for CFE to construct a power transmission line, approximately 22.5 kilometres in length, from the CFE national grid in Arcelia to the G-9 project site. Approximately 15 Mega Watts of capacity are guaranteed by this agreement, which power will be supplied at rates established by CFE’s public commercial tariff rates and which should be sufficient for the planned production and processing rate (1,500 tonnes per day).

As earlier noted (Sub-Section 6.7), regulatory approvals for the construction of a high voltage power line are in progress. Negotiations are underway with local land owners, as well as the municipality of Arcelia, to allow for the construction and routing of the transmission line to the G-9 project site.

7.4.3 Potable Water

Farallon has established a potable water facility on a topographic high near the exploration/administration camp, which facility also supplies the Campo Morado community (that previously had no piped water supply). There is no readily identifiable reason to suppose that the existing facility is insufficient for current and immediate future needs.

7.4.4 Operations’ Water

Knight Piésold of Vancouver, British Columbia, Canada (“B.C.”) is undertaking a comprehensive study of processing and mine water requirements. Knight Piésold has thus far (September 2007) concluded that sufficient water can be secured on site, from sources including damming surface water for take-off and recycling water from the historic Naranjo oxide workings. A surface well hole might also be drilled. Water used in the processing plant will be recycled via a purification plant; water purification is required for reasons of optimizing plant recoveries (Section 19). Underground pumping will take place as required (a sump and pumping station form part of the mine predevelopment plan outlined in Section 20). Permitting requirements for water usage are covered in the aforementioned Project MIA.



7.5 Local Resources

Although Mexico has a long history of mining, the general area of Campo Morado was, until the Company’s/Farallon’s involvement, fairly inaccessible, due to the quality and developed extent of the available access roads. Local mining activity ceased altogether in about 1940; employment is mainly limited to subsistence farming and related activities.

The results of a socio-economic study by Farallon (Sub-Section 7.6) have shown that emigration to the United States of America from the 59 local population centers (within a 30 kilometre radius community of Campo Morado, in the municipalities of Arcelia, Teloloapan, Apaxtla y Acapetlahuaya) remains high at over 60 percent. Educational levels have been assessed by Farallon to be low (23 percent of the population has Grade 6, 54 percent of the population has less than Grade 6). Farallon nevertheless anticipates that the future required workforce can be found within the local communities: with adequate training, Mexicans learn easily how to use mining equipment and machinery; and the visual evidence of mining and construction activities during MineFill’s June 2007 site visit supports this view.

Supplies and other normal services are readily available within Mexico. If specialist equipment is needed this can be imported, as required.

7.6 Socio-Economic Impact

Farallon and its contractors currently employ more than 100 people from within the local communities. The Company/Farallon plans to create between 200 and 250 jobs in the local area, as a result of a G-9 operation. The jobs will include an estimated 21 skilled miners, 49 semi-skilled miners, 32 laborers and 73 mill workers, with the balance employed in secretarial, security, truck shop, crusher and grinder and general labour roles.

Farallon has a mature and well-defined socio-economic development program through partnership programs within the local communities and government agencies. A key foundation element was a detailed socio-economic study within a 30 kilometre radius of Campo Morado, the objective of which was to assess the skills levels of available workers (866 direct interviews were carried out, yielding information on 3,769 people). A need for training was identified, Farallon as a result:

• is actively involved with the National College of Technical Education (Colegio Nacional de Educación Profesional Técnica, or “CONALEP”), a federally certified training institution that provides technical training for those who have completed high school/Grade 9 (in a program designed to strengthen the available skills base in the local communities, in the areas of basic electricity, mechanics, welding and plumbing); and

• has entered into partnership with RODA, a private training company that has trained successfully personnel in the Mexican mining and construction industries (the purpose of the partnership is to develop and implement job-specific training programs to meet Farallon’s needs for multi-functional mining roles going forward).



Farallon is also closely involved with community projects covering general education, health and environmental stewardship through participation with key government institutions. As regards general education, Farallon is involved with the National Institute for Adult Education (Instituto Nacional para la Educación de los Adultos, or INEA). Farallon has/is also:

• established a local medical clinic (at Campo Morado village) that the Government now runs;

• upgraded local infrastructure, including local roads and water supply facilities (the latter by sharing the exploration/administration camp’s potable water supply with the Campo Morado community);

• actively engaged in archaeological investigations across the concession area; and

• developing reforestation projects with CONAFOR, in conjunction with the local communities.

The impression gained from MineFill’s site visits is that the Company/Farallon is well received by both the local communities and government, and that the current and future planned operations are seen in a positive light.

8 HISTORY

8.1 Overview

The history of the Campo Morado Property is described in the June 24, 2005 Technical Report (filed on www.sedar.com). The details are not repeated here.

Historical mining activity took place on the Campo Morado concession, summary details of which are presented in the following Sub-Section 8.2.

8.2 Past Production

Early exploration was undertaken solely by underground drifting at the Reforma mine, where a total of six levels of underground development exist over a vertical distance of 180 metres and a horizontal distance of about 900 metres.

Earliest production was from a small high-grade silver vein near the third level; in 1903 more massive, gold- and silver-bearing oxide mineralization was found during tunneling activity on the third level. Later in 1903 a 27 short tons per day (“stpd”) smelter was built at the site. In 1904 production capacity was increased to 56 stpd and in 1907 to 100 stpd. Between 1903 and 1910 production totalled 3,387 kilograms of gold, 125,230 kilograms of silver and 4,157 short tons of lead. A minor part of this came from the Naranjo oxide deposit, which had been discovered in about 1900. The size of a slag heap below the Reforma smelter suggests that approximately 150,000 short tons of mineralized material were mined and direct smelted.



Operations at Reforma mine ceased around the time of the Mexican revolution of 1912, following which sporadic mining took place between 1920 and 1927 and between 1937 and 1940. Most of the remaining high-grade oxide material, along with a small amount of sulphide mineralization plus minor amounts of oxide material from nearby deposits, was mined during these periods.

8.3 Historical Resource Estimates

The G-9 deposit is a new discovery for which no historical resource estimates exist.

9 GEOLOGICAL SETTING

With the exception of the description of the G-9 deposit presented in Sub-Section 9.3.5, the text contained in Sub-Sections 9.1 to 9.5 was compiled by MineFill from the June 24, 2005 Technical Report, which information is referenced in the December 13, 2006 Technical Report. The G-9 deposit description is an updated version of the text presented in the June 24, 2005 Technical Report, which update was prepared by Daniel Kilby, P. Eng. Various details of the G-9 deposit were examined during MineFill’s June 2007 site visit, by means of discussions held with Company/Farallon staff members, scrutiny of readily available geology plans and sections and the examination of selected (by Farallon) drillcore intersections.

9.1 Regional Geology

The Project area lies in the Teloloapan sub-terrain of the Guerrero terrain near its margin with the Mixteco terrain to the east, the Sierra Madre Occidental to the west, and the Trans-Mexican Neogene Volcanic belt to the north (Figure 9.1a). The Guerrero terrain is an elongate, fault-bounded, composite terrain along the south-western margin of Mexico. Campa and Coney (1985) described it as an allochthonous block of Upper Jurassic to Lower Cretaceous platform limestone, quartz sandstone, island arc volcanic rocks and miogeosynclinally derived, clastic sedimentary rocks. Freydier et al. (1993) proposed that the Guerrero terrain developed as a long-lived island arc isolated from continental Mexico by the Arperos oceanic basin.

During the Late Cretaceous to Paleogene Laramide orogeny, the Guerrero terrain was deformed by folding and thrusting from the south-southwest over the deformed Precambrian to Middle Mesozoic basement rocks of the Sierra Madre Occidental. At the same time the Guerrero terrain was metamorphosed in the sub-greenschist to greenschist facies (Miranda-Gasca, 1995). Total crustal shortening due to folding and thrust faulting has been estimated to be 60 kilometres (Lang et al., 1996).



Figure 9.1 – Regional Geology Plans

The rocks were intruded by felsic to mafic dikes and plugs. Some of the diorite bodies may be hypabyssal, synvolcanic intrusions. Granodiorite and feldspar porphyry may be of Late Cretaceous, Laramide age. Tertiary rocks include continental rhyolite flows, pyroclastic rocks and feeder dikes that are probably of Eocene age. To the southeast, continental basalt flows of the Pliocene Balsas Group are developed.

Based on geochronology and lithology, Campa and Coney (1983) divided the Guerrero terrain into several sub-terrains (Figure 9.1b), the most important being Teloloapan, Zihuatenejo and Huetamo (Figure 9.1c). Other sub-terrains include Fresnillo-Zacatecas (containing the San Nicolas and Francisco y Madera deposits) and Guanajuato. The Teloloapan sub-terrain includes island arc volcanic rocks, platform limestone and quartz sandstone and shale-siltstone sequences. It is distinguished from the other two major sub-terrains by its greater amount of island arc volcanic rocks (Centeno-Garcia et al, 1993). Lang et al. (1996) found ‘no stratigraphic incompatibilities or structures that require the existence of any of these (i.e. sub-terrain) boundaries’, and quoted several other recent authors who support that conclusion.



Near the town of Teloloapan, there is a broad zone of outcrop of massive, cliff-forming, grey limestone of the Guerrero-Morelos platform carbonate sequence. To the west of the town there exists an up to 200 metres thick, discontinuous belt of coarse, proximal, turbiditic calcarenite (Monod et al, 1994). This was derived by erosion of carbonate rocks from the Morelos platform to the east; it is time-equivalent to the Morelos carbonate assemblage.

Several zones of fine grained calcarenite exist near Acapetlahuaya, which are similar to those southeast of Teloloapan. They conformably overlie argillite-wacke-limestone of the upper part of the volcanic/sedimentary sequence and may represent a distal facies of the calcarenite. This change westward, from the Morelos platform to facies indicative of a shallow basin and slope environment, marks the edge of a deeper basin to the west. The Project area lies in this basin, immediately to the west of its margin.

9.2 Property Geology

The VMS deposits found in the Campo Morado Project area are hosted in a sequence of felsic to intermediate flows and tuffs and heterolithic fragmental rocks. Most of the deposits are in the upper part of the felsic pile or at the contact with stratigraphically overlying, fine-grained, chemical and clastic sedimentary rocks. Five major lithostratigraphic units have been distinguished that, in order of age, are: the Guerrero ridge intermediate volcanic – sub-volcanic unit; the Naranjo sedimentary unit; the Campo Morado felsic volcanic unit; La Canita volcanic unit; and the Reforma sedimentary unit.

Hypabyssal massive bodies of felsite, which probably represent late magmatic pulses of two ages (one associated with the Campo Morado felsic unit, the other being of Tertiary age) have intruded the Reforma and Naranjo sedimentary units, the Campo Morado felsic volcanic unit and the Guerrero Ridge unit.

9.3 Deposits’ Geology

9.3.1 Reforma Deposit

The Reforma deposit is located in the northern part of the local deposit trend; it occurs at the top of the overturned Campo Morado felsic volcanic unit. Geological modelling shows that the main Reforma sulphide body has a tabular shape maximum horizontal dimension of 760 metres. It extends for 60 to 350 metres along the dip of the rock units and is two to 50 metres thick.

The deposit consists predominantly of pyrite with variable amounts of quartz and other gange minerals, and minor to moderately abundant copper, lead and zinc sulphides. Three distinct zones of mineralization have been identified, including: an upper lead-zinc sulphide rich zone; a central iron sulphide-rich zone grading upwards to an iron-zinc sulphide zone; and a lower copper-rich zone. Significant gold and silver mineralization occurs in the upper zone.



9.3.2 El Rey Deposit

El Rey is 200 metres southwest of the Reforma deposit. The geological setting is similar to that of the Reforma deposit, but the rock sequence appears to be overturned as the massive sulphides occur structurally beneath the felsic volcanic unit. The primary El Rey sulphide body is tabular in shape and nearly horizontal; it is approximately 250 metres wide in the east-west direction, 200 to 250 metres wide in a north-south direction and it is between two to 35 metres thick. The deposit is cut by several faults with offsets of up to a few tens of metres. The El Rey massive sulphide is also zoned. As in the Reforma deposit, a gold-, silver-, lead- and zinc-bearing zone is found near the base of the deposit.

9.3.3 Naranjo Deposit

The Naranjo deposit is located approximately 700 metres south of the El Rey deposit. It is comprised of two main sulphide bodies, the largest of which is 75 to 240 metres wide in the east-west direction, about 500 metres long and about five to 75 metres thick. Although not as sharply developed as in the Reforma deposit, three distinct zones of mineralization have been identified, including: an upper lead-zinc sulphide-rich zone with high gold and silver values; a central zone with low to moderate copper and zinc values; and a lower zone of predominately copper or less commonly zinc and gold values. There is additional copper and zinc sulphide mineralization within veins beneath the main sulphide lenses.

9.3.4 El Largo Deposit

The El Largo deposit is located near the southern end of a 1.5 kilometre long ridge, about 100 metres west of the Naranjo deposit. It is comprised of one primary sulphide body and nine smaller mineralized bodies. The primary sulphide body has excellent continuity: it is over 700 metres long, 50 to 200 metres wide and ten to 100 metres thick.

9.3.5 G-9 Deposit

The G-9 massive sulphide deposits occur at the top of a felsic volcanic sequence that consists of felsic domes, flows, lapilli tuff and tuff with interlayers of argillite. In the footwall rocks there are a few centers of strong hydrothermal alteration that are marked by abundant quartz-pyrite stringer mineralization that in places contains abundant sphalerite and/or chalcopyrite. The zones of high sphalerite and chalcopyrite in the stringer zones are near the major deposits of high-grade massive sulphide. The grades of the massive sulphide deposits vary both laterally and vertically, with few overall patterns of zonation.

Above the G-9 deposit is a sedimentary sequence, the lowest part of which is dominated by calcareous argillite and siltstone that were deformed strongly by shear folding during regional deformation. Within this unit are a few domes, stubby flows and lapilli tuff of a younger felsic volcanic unit. This sequence also includes scattered zones of distal, reworked, intermediate and felsic tuffaceous rocks of the explosive Nuestro Amigo unit that are inter-layered with argillite. The upper part of the sedimentary sequence consists of interbedded argillite and quartzite, some of which shows soft-sediment deformation textures. Cherty and cherty argillite are common in



stratabound lenses immediately above and lateral to the massive sulphide deposits and also occur above the younger volcanic rocks in several places. This suggests that some of the hydrothermal centers were rejuvenated a number of times.

The G-9 deposit comprises four main zones of massive sulphide: the so-called Southeast, Southwest, North and Abajo Zones:

• the Southeast, Southwest and North Zones are above the major southwest-dipping San Raphael thrust fault, whereas the Abajo Zone is below the fault;

• the Southeast and North Zones occur on and near a northwest-trending felsic ridge, whereas the Southwest Zone is in a shallow basin southwest of the ridge; and

• the Abajo Zone (or New Zone) is at the top of a felsic pile that appears to be at a lower stratigraphic level than the El Largo deposit that is a few hundred metres to the north.

The G-9 Southeast Zone extends for about 300 metres by 200 metres, in plan view. It contains numerous drill intersections of well banded, massive sulphide dominated by sphalerite with lesser chalcopyrite and minor pyrite. Galena is concentrated locally in bands that are parallel to the bedding. Elsewhere, pyrite is more abundant and both sphalerite and chalcopyrite are correspondingly less abundant.

The Southeast Zone occurs in steep-sided basins that are up to 20 metres thick, which basins extend to marginal zones of similar massive sulphide that are less than two metres thick. The southern part of the Southeast Zone contains two stacked massive sulphide lenses, in the lower of which are a few sub-zones of up to four metres thick that contain galena-rich areas containing high gold and silver values. Areas of strong, stringer mineralization are developed below the main VMS body, which stringer zones contain moderately abundant veinlets and replacement zones that yield one to five percent zinc and 0.3 to 0.6 percent copper, in one metre samples.

The southwest side of the Southeast Zone is truncated partly by an intrusive dome/plug of felsite. Along its northern side it is cut by three curved sub-vertical faults, the northeast sides of which are displaced downwards relative to the southwest sides of the fault planes. The faults explain the sudden disappearance of the felsic rocks and G-9 Southeast Zone to the northeast, just above the San Rafael fault. The sub-vertical faults probably were formed during thrusting, above the leading edge of the San Rafael fault.

The G-9 North Zone extends for approximately 500 metres by 200 metres in plan view. It is similar in nature and thickness to the Southeast Zone, but it contains lesser zones of high-grade sphalerite and chalcopyrite. In places the North Zone also contains two or more stacked massive sulphide lenses; locally, at the base of the lower lens, is a six metre zone of high-grade gold and silver (up to 76 g/t Au and 3,570 g/t Ag over one metre), with only two percent zinc, one percent lead and 0.2 percent copper. Beneath the massive sulphide deposits are regions of strong stringer and replacement mineralization, some of which contain up to five percent sphalerite and three percent chalcopyrite.

The G-9 Southwest Zone is a thin sheet that is approximately 400 metres by 200 metres in plan view and up to 17 m thick along its axis. It formed in a shallow basin, southwest of the felsic



volcanic ridge. The basin extends beyond the zone of felsic volcanic rocks into a zone of argillite and quartzite. The massive sulphide is dominated by pyrite with lesser sphalerite and quartz and much lesser chalcopyrite.

The G-9 Abajo Zone forms a moderately continuous sheet that is five metres to 20 metres thick, over an area of 200 metres by 300 metres. It sits on top of a felsic volcanic pile and below a thick zone of chert and cherty argillite. It contains well-banded zones that are rich in sphalerite with lesser chalcopyrite and only minor pyrite, with other zones that are dominated by pyrite with lesser sphalerite and much lesser chalcopyrite and galena. The felsic rocks contain a moderately developed stringer zone beneath the main VMS body, which stringer zone locally contains up to three percent sphalerite and three percent chalcopyrite. The stringer zone has not been tested at depth by drilling.

9.4 G-9 Comparisons

The G-9 deposit is somewhat different to the deposits to the north of the San Raphael fault. To the north the massive sulphide lenses are found at the top or base of the felsic volcanic rocks, depending on whether the section is upright or overturned. At G-9 there are accumulations at a number of stratigraphic levels in stacked basins. Stringer mineralization is widespread and strong and both contiguous to and surrounding the G-9 massive sulphide lenses. At El Largo, for example, stringer mineralization in the footwall of the lens is very limited.

The overall higher copper and anomalously high gold grades compared to other VMS deposits at Campo Morado suggest that the G-9 sulphides intersected to date are more proximal to their source than those drilled at El Largo. The northern sulphide lenses accumulated in basins that were up to 700 metres long, 100 metres wide and 100 metres deep, with steep sides formed by felsic flows. At G-9, the massive sulphides are on the flank of a major felsic flow complex and are related to a series of smaller scale felsic domes surrounded by fragmental and tuffaceous rocks interbedded with argillite. G-9 mineralization might be comparable to a Kuroko type deposit rather than the silici-clastic deposits to the north. Kuroko deposits typically have higher overall grades than the larger scale silici-clastic deposits; higher zinc and copper grades exist at G-9, compared with the deposits north, as well as by coarser-grained sulphides.

Relations between G-9 Abajo Zone mineralized body and El Largo deposit suggest that G-9 Abajo Zone mineralized body is at a lower stratigraphic level than El Largo to the north. This opens the area below El Largo to exploration for a massive sulphide body at the top of the northerly extension of the G-9 Abajo Zone volcanic pile.

9.5 Structure

In parts of the region, a major deformation event (D1) is characterized by north-northeast verging, upright to slightly overturned D1 folds and thrust faults. The axial surface of the largest D1 anticline lies between the inverted Reforma and upright Naranjo stratigraphic sections and typically trends northwest, with dips mainly from 25 to 40 degrees to the southwest. Three thrust faults have been identified at Reforma: the Hinge, Footwall and Reforma faults that separate the overturned from the upright rock units. The San Rafael fault separates the Naranjo



and El Largo deposits from the San Rafael, La Lucha and G-9 deposits. Upright folds include a broad syncline and tighter anticline pair between the Reforma and Naranjo deposits and display an east-southeast-trending axis and shallow plunge to the southeast.

Extensional faults offset all stratigraphic and other structural elements. Slickensides indicate predominant dip-slip movement. The Naranjo fault drops the stratigraphic section of the southern segment of the Naranjo deposit by 60 to 80 metres and has up to 100 metres dextral/right-lateral, strike-slip movement. The extensional north-dipping El Rey fault drops the north side of the El Rey massive sulphide deposit 30 to 60 metres relative to the south side. The strike orientations of the Naranjo and El Rey faults are similar to the Footwall and Hinge faults at the Reforma deposit. The West Naranjo fault, which trends north and dips steeply to the east, has dropped the western edge of the El Rey area by at least 50 metres.

10 DEPOSIT TYPE

Mineralization in the Project area is of the volcanogenic massive sulphide (VMS) type. Deposits accumulate in depressions on the sea floor, adjacent to felsic volcanic centers. Massive sulphides may accumulate immediately above hydrothermal vents or move down slope into a nearby basin.

11 MINERALIZATION

The following text was compiled by MineFill from the June 24, 2005 Technical Report. Key information was checked by cross-referencing the aforementioned report by G&T Metallurgical Services Limited (“G&T Services”) dated April 18, 2007. MineFill also examined various details of Campo Morado mineralization during its June 2007 site visit, by means of discussions with on-site Company/Farallon staff members and on-site scrutiny of selected (by Farallon) drillcore intersections.

The massive sulphide horizons of the Campo Morado deposits are mainly comprised of fine-grained pyrite (iron sulphide) with a variety of other sulphide minerals that include, in descending order of occurrence, sphalerite, chalcopyrite, galena, tetrahedrite-tennantite, arsenopyrite, marcasite and pyrrhotite, traces of tin minerals, electrum (gold alloy containing 20 percent or more silver) and gold.

The base metal sulphides are found as discreet mineral grains or, more frequently, as infill mineralization between or within pyrite grains. Gold occurs in liberated form or as gold present as adhesions/binary structures with chalcopyrite and galena, in which binary forms it comprises approximately one third of the gold content in the G-9 deposit. The remaining gold is present as small adhesions or inclusions with pyrite or as multi-phase occurrences contained mainly in pyrite, in which form it is not amenable to flotation. Approximately half the silver content of G-9 mineralization is closely associated with tetrahedrite, about 40 percent with pyrite and the balance with galena and various minor minerals.



12 EXPLORATION

The key dates in Farallon’s exploration activities at Campo Morado are November 1995, when their exploration activities commenced, November 1998 when their exploration activities temporarily ceased due to unfavorable metal prices, August 2004 when their exploration activities recommenced and June 2005, which is the date of the first intersection of high-grade mineralization in the G-9 deposit. Descriptions of the Company’s/Farallon’s exploration activities between the key dates and to the data cut-off date for this Technical Report (September 23, 2007) are presented in the following Sub-Sections 12.1 to 12.3, inclusive. The text was in part compiled by MineFill from the June 24, 2005 Technical Report and the December 13, 2006 Technical Report. Key information was checked by cross-referencing Farallon’s verified (by the Company) drillhole database, which was also the source of the presented 2007 data.

12.1 Overview – November 1995 to November 1998

Prior to Farallon’s involvement, base metal showings in the Campo Morado district were explored by surface excavations and tunnels. Following Farallon’s involvement in 1995, the Company initiated an intensive exploration program, starting in mid-November 1995. Farallon’s program included: rehabilitation of access roads and underground workings; a regional, airborne geophysical survey; regional and detailed geological mapping; stream and soil geochemical surveys; camp construction; topographic and orthophotographic map production; equipment purchase; drilling mobilization payments; and property option payments, work performance bond posting and support costs.

Using the extensive geophysical, geochemical and geological databases that had been developed as part of the exploration program, Farallon created geological models, alteration vectors and gravity anomalies that led to the discovery of the Naranjo sulphide deposit (in the same area as the Naranjo oxide deposit, from which there was minor historical production – Sub-Section 8.2), as well as El Largo, El Rey, G-9 and Estrella del Oro deposits. The deposits do not have any surface expressions and they occur below unmineralized, younger strata. South of these discoveries detailed geological mapping identified similar recurring felsic domes and alteration zones that are coincident with strong, multi-element soil geochemical anomalies.

To further refine targets for drilling and to ascertain its effectiveness, a test gravity geophysical survey utilizing the latest computer terrain modelling technology was completed over the known massive sulphide deposits. All of the known deposits were identified by the survey and, because of this, the gravity survey was expanded to cover all prospective zones. A total of 15 anomalies were located within the area surveyed. Of these anomalies, eight are associated with known mineralization and the remaining seven are interpreted as potential new deposit targets. The gravity survey was carried out by a contractor, Vox Image Ltd. in 1998.

By the end of the 1998 field campaign, Farallon had completed a 1:2,000 scale geological mapping program of the central 20 kilometres of the Campo Morado VMS belt. In addition, the northerly and southerly extensions of the belt were mapped at a reconnaissance scale of 1:5,000. In the main part of the deposit cluster, geological cross-sections were generated between the El Rey and Reforma deposits to the north and the El Largo and Naranjo deposits to the south, to graphically depict both the known deposit expansion potential and new deposit discovery



potential. In addition to these geological studies, extensive soil geochemical surveys and terrain-corrected gravity surveys were completed over the core of the mineralized trend.

The combination of favorable geology and coincident gravity, followed by a ten hole diamond drilling program in May 1998, led to the discovery of the fifth blind deposit: Estrella de Oro, about 500 metres west of El Largo. The deposit was intersected in three drillholes; it remains open in all directions. Significantly, the last hole drilled intersected 13.4 metres grading at 4.44 g/t Au, 357.8 g/t Ag, 0.55% Cu and 5.33% Zn, plus lead.

12.2 Overview - August 2004 to May 2005

Farallon’s exploration activities at Campo Morado ceased in 1998, due to the prevailing metal prices, but recommenced in August 2004 due to more favorable market conditions. The objectives of the renewed program were to:

• further delineate the El Largo and Estrella de Oro deposits;

• to retrieve core for metallurgical testwork on the El Largo, Naranjo and Reforma deposits; and

• to test zones such as G-9, G-10 and La Lucha (the G-9 exploration effort being made due to narrow intervals of massive sulphides, underlain by strong stringer mineralization, being recognized when the G-9 gravity anomaly was test-drilled in 1998).

A total of 115 cored holes were drilled and assayed during this period, including three geotechnical holes, 15 metallurgical holes and 97 exploration holes, one of which was abandoned. Of these, 59 holes were drilled at the El Largo deposit, nine at El Rey, two at Estrella de Oro, six at G-9, 17 at Naranjo and 19 at Reforma. Excluding the geotechnical and the abandoned hole, all but eight of the holes intersected sulphides.

12.3 Overview - June 2005 to 23 September 2007

Since 2004, drilling has been performed by Britton International Drilling of Hermosillo, Sonora, Mexico using skid-mounted Longyear 38 equipment, in two 10-hour shifts each day.

High-grade mineralization in the G-9 deposit was intersected in drillhole 5420 in June 2005 (13.96 metres true width grading 1.06 g/t Au, 67 g/t Ag, 1.76% Cu, 0.69% Pb and 14.16% Zn). Subsequent work was, as a result, focused on the G-9 deposit. Drilling was the primary exploration tool; from June 2005 to the data cut-off date for this report of 23 September 2007 a total of 194 exploration diamond drillholes (95,585.61 metres) had been drilled.



13 DRILLING

The results detailed in the following Sub-Sections 13.1 to 13.3, inclusive, were compiled by MineFill from various Company news releases and from Farallon’s verified (by the Company) drillhole database. Key information was checked by cross-referencing both the June 24, 2005 Technical Report and the December 13, 2006 Technical Report. Figure 13.1 is a deposit thickness isopach plan that summarizes the positions of all the holes drilled across the Campo Morado Project area up to the cut-off date for this Technical Report (September 23, 2007). Figure 13.2 details the positions and traces of all the holes drilled on the G-9 deposit up to the same cut-off date.

Figure 13.1 – General Deposit Thickness Isopach Plan Showing all Holes Drilled to September 2,3 2007 (drillcore collars identified by black dots, drillhole traces as black lines)



Figure 13.2 – G-9 Deposit Thickness Isopach Plan Showing all Holes Drilled to September 23,

2007 (drillcore collars identified by black dots, drillhole traces as black lines)

13.1 Overview - June 1996 to May 1998

Between June 1996 and May 1998, the Company completed a drilling program (64,702.28 metres) consisting of 320 cored (all NQ diameter [47.6 mm]) exploration, delineation and geotechnical holes (Table 13.1). This included six holes in the G-9 deposit (2,419.80 metres) that were drilled during 1997. Of the six G-9 holes three intersected sulphides, the assay results for which are summarized on Table 13.2.



Table 13.1 Summary of Campo Morado Drilling Campaigns, June 1996 to May 1998

Deposit Year Number of Holes

Total Metres

El Largo 1997 29 7,884.08 El Rey 1996 (from June)

1997 2 25

330.40 5,165.82

Estrella de Oro 1998 (to May) 3 706.53 G-9 1997 6 2,419.80 G-11 1998 (to May) 3 913.79 G-14, -17, -18 & -19 1998 (to May) 4 1,449.02 La Lucha 1996 (from June)

1997 13 1

1,629.14 173.74

La Suriana 1997 45 6,057.89 Naranjo 1996 (from June)

1997 64 26

11,876.72 7,020.77

Reforma 1996 (from June) 1997

1998 (to May)

83 9 1

15,234.74 2,232.04

129.84 San Rafael 1996 (from June)

1997 3 3

602.59 875.37

Sub-totals 1996 (from June) 1997

1998 (to May)

165 144 11

29,673.59 31,829.51

3,199.18 Totals 1996 to 1998 320 64,702.28

Table 13.2 Summary of Assay Results, G-9 Drillhole Intersections, June 1996 to May 1998

Drillhole From (m)

To (m)

Interval (m)

True Width (m)

Au (g/t)

Ag (g/t)

Cu (%)

Pb (%)

Zn (%)

97305 97307 97308

298.80 327.40 326.43

303.30 335.15 327.31

4.50 7.75 0.88

4.50 7.00 0.80

3.30 0.56 0.18

210 65 35

1.22 1.53 4.38

0.79 0.52 0.03

4.73 5.20 0.21

Notes: - the first two digits (i.e. ‘97’) of the drillhole identification numbers refer to the year the hole was drilled (1997, in this case).

- the G-9 drillholes that did not intersect sulphides were hole numbers 97228, 97223 and 97306.

13.2 Overview - August 2004 to May 2005

Between August 2004 and May 2005, a total of 30,617.42 metres was drilled in 115 cored holes (Table 13.3), including 15 holes drilled for metallurgical samples, three geotechnical holes drilled in 2005 and a total of six holes drilled into the G-9 deposit. All but six of the holes were drilled to recover NQ diameter (47.6 millimetre) core, the six were drilled to recover HQ diameter (63.5 millimetre) core (two each in the El Rey, Naranjo and Reforma deposits). Of the six G-9 holes four intersected sulphides, the assay results for which are summarized on Table 13.4.



Table 13.3 Summary of Campo Morado Drilling Campaigns, August 2004 to May 2005

Deposit

Year

Number of Holes

Total Metres

El Largo 2004 (from August) 2005 (to May)

40 19

9,817.71 5,040.79

El Rey 2005 (to May) 9 2,324.82 Estrella de Oro 2004 (from August) 2 525.21 G-9 2004 (from August)

2005 (to May) 4 2

1,634.62 999.43

Naranjo 2004 (from August) 2005 (to May)

14 3

3,919.31 1,124.10

Reforma 2004 (from August) 2005 (to May)

6 13

1,461.71 3,603.77

Geotechnical 2005 (to May) 3 165.95 Sub-totals 2004 (from August)

2005 (to May) 66 49

17,358.56 13,258.86

Totals 2004 & 2005 115 30,617.42

Table 13.4 Summary of Assay Results, G-9 Drillhole Intersections, August 2004 to May 2005

Drillhole

From (m)

To (m)

Interval (m)

True Width (m)

Au (g/t)

Ag (g/t)

Cu (%)

Pb (%)

Zn (%)

4348 and and

4368 4370 and and and and

4374 and

260.75 275.75 285.50 284.00 132.14 248.50 484.20 512.80 517.00 375.00 391.60

262.12 277.15 287.35 285.00 133.70 250.50 484.90 515.30 518.00 375.40 392.05

1.37 1.40 1.85 1.00 1.56 2.00 0.70 2.50 1.00 0.40 0.45

1.37 1.40 1.80 1.00 1.00 1.30 0.40 1.60 0.60 0.40 0.45

2.93 1.67 0.28 3.05 0.61 0.25 0.05 0.19 0.17 0.13 0.77

489 34 21

757 57 46 22 7 9 12

298

2.62 0.69 0.73 0.59 1.61 0.37 6.73 0.89 0.99 4.20 1.76

1.60 0.06 0.14 0.61 0.88 0.77 0.00 0.02 0.02 0.03 6.08

2.02 8.13 3.69 0.47 1.66 3.59 5.03 4.08 5.28 0.59 8.76

Notes: - the first digit (i.e. ‘4’) of the drillhole identification numbers refers to the year the holes were drilled (2004 in this case).

- drillhole 4330 was abandoned. Drillholes 4355-D2, 4350, 4353, 4360, 4371-D1 and -D2, 4373-D1, 4366-D0, -D1 and -D2, 4369-D0, -D1 and -D2, and 5375-D0 and -D1 were metallurgical sampling holes - the -D1 and -D2 attributes refer to the drillhole deflection number (-D0 denotes a “mother hole” drilled for purposes of metallurgical testing). Drillholes 4372 and 5415 did not intersect sulphides.

13.3 Overview - June 2005 to September 23, 2007

Between June 2005 and the cut-off date for this Technical Report of September 23, 2007, a total of 99,705.58 metres was drilled in 230 cored holes (Table 13.5), including 12 drilled for metallurgical samples in the G-9 deposit and 13 geotechnical holes (1,031.60 metres) drilled in 2005 and 2006. All but four of the holes were drilled to recover NQ diameter (47.6 millimetre) core; the initial portions of two (5494 and 5495) were drilled to recover HQ diameter (63.5 millimetre) core and the deepest portions of two (6536 and 7592) were drilled to recover BQ



diameter (36.5 millimetre) core. Of the 182 G-9 exploration holes that were drilled, 85 intersected significant sulphide mineralization and three were abandoned due to orientation problems:

• Table 13.6 (that is split into Tables 13.6a and 13.6b, due to its overall length) summarizes the significant assay results for the drillholes from June 2005 that were used as part of the November 2006, G-9 resource estimate described in Section 19 (i.e. all drillholes from 5420 and up to and including 6581 that was drilled in September 2006, the 69 holes of which series, in which either no sulphides or no significant sulphide intersections were found, are listed at the base of Table 13.6b); and

• Table 13.7 (that is split into Tables 13.7a and 13.7b, due to its overall length) summarizes the significant assay results for the holes drilled following the November 2006 resource estimate, to September 23, 2007 (i.e. all drillholes from 6591 to 7649, inclusive, the 25 holes of which series, in which either no sulphides or no significant sulphide intersections were found, are listed at the base of Table 13.7).

Table 13.5 Summary of Campo Morado Drilling Campaigns, June 2005 to September 23, 2007

Deposit

Year

Number of Holes

Total Metres

El Largo 2005 (from June) 7 1,381.36 El Rey 2005 (from June) 5 925.07 El Profundo 2005 (from June) 4 1,819.05 Estrella de Oro 2005 (from June) 14 3,013.86 G-9 2005 (from June)

2006 2007 (to September 23)

59 65 58

28,560.34 35,266.19 26,705.23

G-10 2005 (from June) 2 917.75 La Lucha 2006 3 1,125.01 Geotechnical 2005 (from June)

2006 4 9

251.80 779.80

Sub-totals 2005 (from June) 2006

2007 (to September 23)

95 77 58

36,869.23 37,171.00 26,705.23

Totals 2005 to Sept. 23, 2007 230 100,745.46



Table 13.6a Summary of Significant Assay Results, G-9 Drillhole Intersections, June 2005 to September 2006

Drillhole From (m)

To (m)

Interval (m)

True Width (m)

Au (g/t)

Ag (g/t)

Cu (%)

Pb (%)

Zn (%)

5420 including

5436 and

5458 5464

including including

5467 and

including including

5468 including

5474 including

and 5479

including 5481 and

including including

5483 5484 and

5485 including

and 5486 and and and

including including

and 5488

including including

5490 including

5495 5496 and

5498 including

and 5500 5503 and

5509 and

including 5510

including and

including including

5511 5512 6517 and and

377.43 377.43 472.05 524.70 369.00 348.20 348.20 360.20 303.15 317.25 317.25 328.05 491.00 491.00 433.30 434.30 460.12 423.20 423.20 459.40 503.00 508.40 508.40 482.40 353.05 399.94 343.85 343.85 407.00 504.05 526.45 535.80 549.30 551.30 555.30 592.35 429.00 429.00 429.00 425.60 426.30 269.25 518.40 557.40 429.15 429.15 468.90 486.50 540.00 555.00 506.70 538.25 545.13 559.00 559.00 573.90 582.00 583.00 558.50 593.95 498.50 503.85 582.00

392.29 387.43 476.05 525.75 372.00 372.00 367.20 367.20 306.93 335.05 323.75 333.05 502.20 497.00 451.12 440.30 464.90 445.20 435.00 494.60 522.50 514.00 512.00 495.50 356.30 406.94 352.10 348.85 409.00 509.45 529.65 545.00 576.50 559.30 558.30 593.75 449.70 445.70 441.70 435.25 430.40 271.30 531.40 561.17 445.90 436.90 473.30 489.50 544.00 559.60 515.70 551.82 551.82 568.00 563.00 585.90 585.00 585.00 560.10 596.10 508.00 508.00 589.00

14.86 10.00 4.00 1.05 3.00 23.80 19.00 7.00 3.78 17.80 6.50 5.00 11.20 6.00 17.82 6.00 4.78 22.00 11.80 35.20 19.50 5.60 3.60 13.10 3.25 7.00 8.25 5.00 2.00 5.40 3.20 9.20 27.20 8.00 3.00 1.40 20.70 16.70 12.70 9.65 4.10 2.05 13.00 3.77 16.75 7.75 4.40 3.00 4.00 4.60 9.00 13.57 6.69 9.00 4.00 12.00 3.00 2.00 1.60 2.15 9.50 4.15 7.00

13.96 9.40 3.80 1.00 3.00 23.50 18.80 6.90 3.74 16.40 6.00 4.60 10.00 5.40 17.70 6.00 4.78 21.60 11.60 34.90 19.30 5.50 3.60 13.00 3.00 6.50 7.90 4.80 1.90 5.30 3.10 9.00 26.50 7.80 2.90 1.40 19.00 15.30 11.70 9.20 3.90 1.80 12.50 3.20 14.50 6.70 3.80 3.00 3.90 4.50 9.00 13.57 6.69 8.80 3.90 11.70 2.90 2.00 1.60 2.10 8.20 3.60 6.10

1.06 1.41 1.29 1.42 0.56 3.54 4.26 4.58 3.76 6.56 6.96 8.47 1.48 1.76 3.19 2.81 13.60 1.60 2.25 2.16 2.72 4.46 4.72 5.06 0.63 3.79 4.76 5.17 0.41 2.40 2.87 4.15 16.02 45.89 66.80 1.14 1.00 1.09 1.25 1.68 2.69 0.42 2.36 2.74 1.97 2.28 15.99 0.15 2.41 0.43 1.01 3.26 3.01 4.87 4.25 11.10 34.95 45.70 1.36 2.30 1.17 0.69 4.82

67 91 62

184 39

195 232 308 259 545 370 970

73 80

242 231 834

98 139 253 209 370 451 191 129 255 370 437

26 115 171 162 609

1,555 2,233

96 87 97

115 214 426

23 119 109 190 262 682

18 136

18 62

205 158 269 285 639

1,930 2,653

130 166 114 102 153

1.76 1.96 0.37 1.46 2.56 0.89 0.91 0.98 0.57 1.38 2.22 1.30 0.42 0.35 1.51 2.55 0.41 0.54 0.60 2.96 1.45 1.90 1.82 1.36 2.28 0.54 2.14 3.16 1.46 1.67 1.32 1.61 0.90 0.29 0.25 1.15 0.86 0.94 1.03 2.45 4.41 0.56 0.73 0.68 1.93 2.32 0.33 1.86 1.11 1.32 0.38 1.14 1.21 0.72 0.81 0.82 0.70 0.62 1.18 2.28 1.39 2.07 0.50

0.69 0.97 0.74 0.58 0.02 0.72 0.86 1.03 1.60 3.85 1.47 10.44 0.52 0.56 1.28 2.03 3.66 0.78 0.94 1.82 1.05 0.92 1.11 0.55 0.91 2.37 1.42 1.68 0.31 0.79 1.43 1.07 1.01 1.34 1.50 0.44 0.98 1.14 1.40 1.91 3.95 0.05 0.90 0.87 2.93 3.95 3.42 0.02 0.54 0.04 0.35 0.97 1.05 4.54 6.64 1.95 2.86 2.90 0.95 1.26 1.16 0.43 1.75

14.16 17.91 4.91 1.17 3.43 12.16 13.89 22.19 4.02 6.69 11.10 5.44 5.26 6.46 2.22 5.30 4.30 6.83 8.34 8.38 14.74 25.90 32.10 10.60 13.24 2.90 5.51 7.22 4.31 9.81 6.10 10.20 5.22 2.46 2.03 4.92 6.08 6.44 6.88 11.81 19.36 6.84 3.56 3.92 21.27 20.32 5.73 7.94 1.21 9.16 5.58 6.88 9.33 10.94 15.66 7.64 5.78 6.25 9.31 12.88 10.27 15.11 2.73



Table 13.6b Summary of Significant Assay Results, G-9 Drillhole Intersections, June 2005 to September 2006

Drillhole From (m)

To (m)

Interval (m)

True Width (m)

Au (g/t)

Ag (g/t)

Cu (%)

Pb (%)

Zn (%)

6519 6522 6525 6527

including and

6531 including including

6532 6534 6535 6536

including 6541

including 6544

including 6546

including 6554 6555

including and and

6557 6559 6562

including and

6563 and and and

6564 6565

including 6566 and and and and

6571 6572 and

6576 including

6578 and

6580 and

491.10 488.00 517.10 525.29 529.29 546.20 531.33 533.33 550.06 379.20 417.30 531.70 585.85 590.85 577.00 580.00 538.40 538.40 541.15 543.15 485.60 533.88 533.88 554.50 564.50 512.00 509.65 388.50 390.50 409.50 545.00 551.00 562.40 572.60 379.50 407.00 417.00 544.00 552.00 558.00 566.00 576.00 404.60 556.60 560.60 402.30 402.30 400.50 413.50 382.30 389.18

494.07 492.80 521.10 542.25 536.20 550.20 558.96 536.00 557.06 381.00 421.80 534.50 594.85 594.85 584.00 583.00 547.15 541.40 546.00 545.15 487.90 572.50 550.50 559.50 572.50 516.65 513.65 394.20 394.20 411.50 549.80 557.00 567.40 576.60 383.50 421.00 421.00 550.00 554.00 566.00 571.00 584.00 406.50 560.60 564.30 416.30 406.30 406.50 417.50 387.05 391.22

2.97 4.80 4.00 16.96 6.91 4.00 27.63 2.67 7.00 1.80 4.50 2.80 9.00 4.00 7.00 3.00 8.75 3.00 4.85 2.00 2.30 38.62 16.62 5.00 8.00 4.65 4.00 5.70 3.70 2.00 4.80 6.00 5.00 4.00 4.00 14.00 4.00 6.00 2.00 8.00 5.00 8.00 1.90 4.00 3.70 14.00 4.00 6.00 4.00 4.75 2.04

2.60 4.20 3.10 16.80 6.80 4.00 26.70 2.60 6.80 1.70 3.90 1.80 9.00 0.80 5.90 3.00 8.75 3.00 4.85 2.00 2.30 38.62 16.62 5.00 8.00 4.65 2.45 5.42 3.52 1.90 3.68 4.60 3.83 3.06 3.94 12.60 3.60 4.60 1.53 6.13 3.83 6.13 1.82 3.98 3.69 13.80 4.00 6.00 4.00 4.11 1.77

0.73 3.01 0.63 4.17 5.60 0.27 2.30 4.75 2.61 0.12 2.61 4.19 1.95 0.80 1.14 0.60 3.27 4.05 7.14 7.58 0.13 1.90 2.96 1.38 1.00 2.58 3.68 4.06 4.60 1.58 2.96 0.71 1.08 0.54 1.95 1.63 2.06 3.61 1.44 1.56 0.77 0.95 0.40 4.92 2.93 0.43 0.72 1.38 0.17 3.42 0.93

21 160

73 227 309

40 194 311 194 115 205 210 110

56 106

69 202 243 306 313

39 138 213 122

61 135 205 236 260

80 169 122

89 54

128 100

92 242 263

95 91 80 79

282 234

33 70

103 13

264 53

1.03 1.46 1.77 0.46 0.68 2.71 1.26 0.61 2.57 4.96 1.37 0.75 0.42 0.60 0.44 0.51 0.61 0.44 0.38 0.45 1.14 0.50 0.38 0.91 0.50 0.46 0.67 1.14 1.39 1.73 1.21 2.36 3.12 0.66 0.44 0.64 0.76 0.37 3.13 1.75 0.38 1.29 3.13 0.69 0.73 2.13 2.43 3.35 1.38 1.65 1.82

0.02 0.91 0.21 1.70 2.16 0.04 1.21 3.11 1.01 0.09 1.12 1.13 1.01 0.89 0.77 0.58 0.87 1.41 1.86 2.55 0.52 0.83 1.13 0.71 0.85 0.48 1.01 1.74 1.97 0.15 0.86 0.31 0.69 0.25 0.91 0.91 1.12 1.25 0.72 0.54 0.50 0.59 0.03 1.27 1.04 0.11 0.27 1.10 0.04 2.21 0.30

6.54 13.70 1.36 5.81 6.06 3.33 6.92 10.70 8.00 0.90 4.97 3.01 3.82 6.71 6.94 9.66 3.28 6.09 6.62 13.28 12.64 3.55 2.85 4.42 5.42 1.80 2.51 5.10 7.55 1.62 3.32 1.38 3.85 8.65 1.62 4.56 6.19 0.14

4.76 3.77 4.72 5.73 0.16 2.72 0.72 14.79 24.33 17.01 8.24 15.59 10.94

Notes: - the first number (e.g. 7) of the drillhole identification numbers refers to the year the holes were drilled (2007 for the example given). The 2006 drillhole series started with drillhole 6515.

- 5422, 5425, 5430 and 5438 were geotechnical holes, holes 5492, 5514 and 6549 were abandoned. - drillholes 5421, 5423, 5424, 5426 to 5429, 5431, 5433 to 5435, 5437, 5439, 5440, 5442 to 5457,

5480, 5482, 6526, 6528 and 6529 were drilled on other Campo Morado deposits. - the 69 G-9 drillholes that did not intersect significant sulphides were 5432, 5441, 5459 to 5463,

5465, 5466, 5469 to 5473, 5475 to 5478, 5487, 5489, 5491, 5493, 5494, 5497, 5499, 5501, 5502, 5504 to 5508, 5513, 6515, 6516, 6518, 6520, 6521, 6523, 5524, 6530, 6533, 6537 to 6540, 6542, 6543, 6545, 6547, 6548, 6550 to 6553, 6556, 6558, 6560, 6561, 6567 to 6570, 6573 to 6575, 6577, 6579 and 6581.



Table 13.7a Summary of Significant Assay Results, G-9 Drillhole Intersections,

November 2006 to September 23, 2007 Drillhole From

(m) To (m)

Interval (m)

True Width (m)

Au (g/t)

Ag (g/t)

Cu (%)

Pb (%)

Zn (%)

6591 7592 7596

including 7597 7598 7599

including 7601

including and and

including 7602 7605 7607 7608

including including

7609 and

7610 7611 7613 and

7615 7617 7618 7620 and

7623 7624 7626 7628

including including

7631 7632 and and


including and

7636 7639

including 7642

including

346.60 383.06 534.65 537.65 266.05 285.85 536.40 538.40 281.20 282.00 283.00 290.10 291.00 329.90 278.50 542.80 527.10 527.10 529.00 335.00 568.40 559.80 625.85 376.95 384.80 556.10 326.00 359.50 550.90 570.68 568.40 319.40 328.80 331.40 332.40 345.40 430.90 395.30 400.30 425.90 382.70 444.09 451.00 466.05 473.35 477.00 481.00 524.00 371.80 325.50 325.50 327.40 327.40

346.78 385.06 542.95 542.95 272.05 294.50 546.95 545.40 286.90 286.90 286.00 305.00 299.00 331.60 283.50 550.80 536.02 533.00 532.00 336.30 571.02 564.00 626.75 377.75 385.05 566.60 328.00 363.40 552.00 574.90 577.12 323.80 333.25 350.70 337.70 349.40 434.95 397.30 403.30 429.90 393.60 451.00 458.90 468.65 477.00 488.00 485.00 526.00 389.80 335.70 333.45 333.30 332.40

0.18 2.00 8.30 5.30 6.00 8.65 10.55 7.00 5.70 4.90 3.00 14.90 8.00 1.70 5.00 8.00 8.92 5.90 3.00 1.30 2.62 4.20 0.90 0.80 0.25 10.50 2.00 3.90 1.10 4.22 8.72 4.40 4.45 19.30 5.30 4.00 4.05 2.00 3.00 4.00 10.90 6.91 7.90 2.60 3.65 11.00 4.00 2.00 18.00 10.20 7.95 5.90 5.00

0.18 1.34 8.30 5.30 5.91 7.71 10.55 7.00 5.70 4.90 3.00 14.90 8.00 1.69 4.93 7.25 8.83 5.54 2.82 1.22

- 3.95 0.81 0.77 0.24 8.81 1.99 3.87 1.08 4.16 8.03 4.29 4.26 19.30 5.30 4.00 3.61 1.80 2.70 3.60 10.24 6.04 6.91 2.27 3.19 9.62 3.50 1.75 16.04 10.16 7.92 5.81 4.92

0.89 1.10 2.96 2.74 0.77 2.25 2.73 3.07 4.35 4.18 3.28 3.27 2.78 5.41 0.72 2.54 2.03 2.34 1.75 2.96 1.37 3.29 4.44 1.09 0.90

1.58 1.79 2.08 5.80 7.69 2.58 2.87 3.43 11.38 5.46 7.85 0.56 0.94 1.22 4.13 1.34 1.82 1.65 2.52 8.38 12.24 14.69 0.24 2.80 2.03 2.19 0.89 0.99

91 166 240 239

39 122 210 232 422 443 470 223 255 534 273 212 148 169 167 139

71 242 320 141 560 172 151 146 174

1,025 165 147 270 615 504 513

22 175

82 187

91 157

50 149 417 731 861

23 231 234 283 167 189

3.09 3.29 0.89 1.05 0.83 1.52 1.33 1.48 3.03 3.19 3.96 1.62 2.07 3.59 1.70 1.16 0.85 1.24 1.07 1.57 0.53 1.29 2.64 3.61 3.60 1.51 2.26 2.74 2.03 1.28 1.37 0.35 0.51 1.38 2.56 1.33 0.13 1.24 1.17 0.43 2.80 2.45 1.29 0.49 0.35 0.33 0.34 1.97 2.71 2.61 2.63 3.25 3.55

0.57 0.41 0.91 1.08 0.38 0.84 1.05 1.26 2.01 2.17 1.43 1.90 2.79 1.06 2.19 2.27 0.94 0.90 0.61 1.53 1.00 1.74 1.36 1.68 3.52 2.43 0.89 1.15 0.60 1.74 1.01 0.65 1.29 3.79 3.17 9.56 0.09 1.26 1.24 1.15 0.74 2.91 0.96 0.66 1.06 3.06 3.68 0.12 0.72 2.51 3.11 0.88 0.97

29.60 23.95 10.79 12.49 7.94 24.27 14.32 16.80 20.71 23.31 30.06 4.52 5.96 12.38 9.78 8.94 7.73 8.20 11.87 6.90 2.85 7.13 3.35 27.80 40.80 14.17 20.48 22.58 4.71 12.21 11.40 12.73 9.42 11.97 20.46 14.73 1.41 2.94 3.50 2.17 15.59 23.47 11.69 13.26 0.30 5.39 5.01 7.76 27.52 19.08 21.16 21.78 24.40



Table 13.7b Summary of Significant Assay Results, G-9 Drillhole Intersections,

November 2006 to September 23, 2007 Drillhole From

(m) To (m)

Interval (m)

True Width (m)

Au (g/t)

Ag (g/t)

Cu (%)

Pb (%)

Zn (%)

7643 7644 7647 and

including 7648

260.93 267.50 284.60 290.60 293.60 290.45

262.20 272.50 287.60 306.40 302.60 298.30

1.27 5.00 3.00 15.80 9.00 7.85

1.25 4.73 2.95 15.56 8.86 7.75

0.84 0.80 10.25 3.57 4.58 1.73

68 72

578 175 213

91

0.76 1.05 2.72 0.75 0.31 1.06

1.47 0.44 0.64 0.94 0.96 0.48

8.30 7.17 0.43 12.99 16.04 18.23

Notes: - the first number (e.g. 7) of the drillhole identification numbers refers to the year the holes were drilled (2007 for the example given).

- drillholes 6582 to 6590, inclusive, were geotechnical holes. - the 25 G-9 drillholes that did not intersect significant sulphides were 7593 to 7595, 7600, 7603,

7604, 7606, 7612, 7614, 7616, 7619, 7621, 7622, 7625, 7627, 7629, 7630, 7635, 7637, 7638, 7640, 7641, 7645, 7646 and 7649.

14 SAMPLING METHOD AND APPROACH

The following text, as well as the text contained in Sub-Section 14.1, was compiled by MineFill from the December 13, 2006 Technical Report. MineFill examined the various details by means of discussions with Company and Farallon staff members, both on site and at the Company’s Vancouver offices.

Logging, sampling and data compilation work is performed by Farallon geologists, inside Farallon’s on-site drillcore storage and logging compound (Figure 14.1), using the Manual for Core Logging and Data Compilation on a Diamond Drilling Project as a guide (Titley, 1996). Geotechnical features such as core recovery, RQD, degree of breakage, hardness, degree of weathering, cross-joints, bedding joints, shape and roughness of discontinuities are measured. Geology logs, complete with written and coded descriptions of lithology, alteration, oxide/sulphide mineralization and structure, are compiled and recorded for all drillcore. Sample intervals are marked prior to box-by-box core photography. The photographs are archived in the Company’s/Farallon’s files.

14.1 Core Sampling

Sample intervals vary from one to two metres, depending on the geology and mineralization features identified by the geologist or engineer logging the drillcore. Mineralized samples are typically one metre in length. About half the host rock samples are two metres in length, but the overall average is about 1.5 metres. Host rock samples that are not two metres in length either correspond to distinct breaks in lithology and/or alteration or they occur at the end of holes. Attention is paid to recovery and core size to ensure that material volume is equally represented within a given sample.



Drillcore samples are sawn in half using a rock saw, with one half placed into plastic rock sample bags and the other halves placed in their original core box positions for reference. The sample bags are tagged with sample tags corresponding to the sample-relevant intervals.

Figure 14.1 – A General View of Farallon’s Core Storage and Logging Facility, from the Campo Morado Exploration/Administration Camp

15 SAMPLE PREPARATION, ANALYSES AND SECURITY

The following text, as well as the text contained in Sub-Sections 15.1 to 15.4, inclusive, was compiled by MineFill from the December 13, 2006 Technical Report. The various details have not been independently verified by MineFill. They were, however, examined for purposes of this Technical Report by means of discussions with Company/Farallon staff members, both on site and at the Company’s Vancouver offices.

The Company/Farallon uses two separate analytical streams, designated “ore” and “host”, for drillcore analysis. The flow charts in Figures 15.1, 15.2 and 15.3 illustrate their sampling and analytical protocols for the 1996 to 1998 host samples, the 1996 to 1998 mineralized samples and the 2004 to 2007 drillholes (“ore” and “host”), respectively.

15.1 Chain-of-Custody

Core is boxed at the drilling rigs and taken twice daily to Farallon’s (locked and fenced) on-site, Campo Morado drillcore storage and logging compound, by members of the drilling crews. All drilling, logging and sampling is supervised by Farallon geological and engineering staff members, based at the Campo Morado exploration/administration camp.

Once an entire sample interval has been cut the plastic sample bags containing the half cores are sealed with plastic zip ties and the bags are tightly wrapped in packing tape, in a manner that allows either Farallon staff or laboratory staff members to recognize if the samples have been tampered with. Four to six individual samples are then placed into sacks for transport. Sample sacks awaiting shipment are kept in a locked enclosure within the drillcore storage and logging



compound, prior to being picked up by the laboratory’s truck for delivery to ALS Chemex’s sample preparation facility at Guadalajara, Jalisco State, Mexico (ISO 9001-2000 accredited).

Figure 15.1 – 1996 to 1998 Sampling and Analytical Flow Chart, Host Rock Samples



Figure 15.2 – 1996 to 1998 Sampling and Analytical Flow Chart, Mineralized Samples



Figure 15.3 - 2004 to 2007 Sampling and Analytical Flow Chart



All the half-cores, remaining after analytical and metallurgical sampling, are held at the on-site drillcore storage facility.

At Guadalajara, the samples are dried, weighed and crushed to 70 percent less than two millimetres (10 mesh) to yield approximately 3.5 kilograms of coarse sample (all procedures carried out by ALS Chemex). Regular pulp samples are then prepared (approximately 250 grams per sample). Regular pulp samples and coarse duplicate samples are shipped by air freight to the ALS Chemex laboratory in North Vancouver, B.C.

15.2 Assay Method

In 1996, 1997 and 1998 the primary analytical laboratory for the primary samples was Min-En Laboratories Limited of Vancouver, B.C.; Eco Tech Laboratory Limited of Kamloops, B.C., was the check assay laboratory. The main laboratory used for the regular samples from the 2004, 2005, 2006 and 2007 programs was/is ALS Chemex in North Vancouver, B.C. (ISO 17025 [Standards Council of Canada] and ISO 9001-2000 accredited). Duplicate pulp samples are prepared and analyzed by Acme Analytical Laboratories Limited in Vancouver, B.C. (“AcmeLabs”, ISO 9001-2000 accredited).

All samples are assayed for gold by fire assay fusion with a gravimetric or Atomic Absorption (“AA”) finish. Silver, copper, lead and zinc, as well as 27 to 30 additional elements, are determined for all samples by acid digestion followed by an AA or Inductively Coupled Plasma (“ICP”) finish. The 2004 to 2007 “ore” sample streams were also assayed for sulphur, by LECO furnace.

15.3 Assay Validation

Quality Assurance/Quality Control (“QA/QC”) samples are submitted by Farallon with the regular samples for analysis, including blind standards, random inter-laboratory duplicates and field blanks. Approximately every 20th “ore” sample is a duplicate (approximately every 40th in “host” rock) and every alternate 20th “ore” sample (every 40th in “host” rock) is a standard. Coarse limestone blanks are inserted at the end of each significant mineralized interval.

15.4 Specific Gravity Data

Whole core specific gravity (“SG”) measurements are performed on all competent massive sulphide sample intervals and from selected wall rock intervals (i.e. prior to the core being cut in half for sampling purposes). SG measurements are taken every five to ten metres, using an electronic balance with a submerged basket suspended below a work table. Samples are dried on a hot plate before weighing in air. The samples are then measured in water, in the submerged basket. SG estimations are carried out on site, using the weights obtained.



16 DATA VERIFICATION

The following text, as well as the text contained in the following Sub-Sections 16.1 to 16.3, inclusive, was to a large extent compiled by MineFill from the December 13, 2006 Technical Report. In the opinion of MineFill, the verification procedures applied by the Company appear to be rigorous and to either meet or exceed industry standards. For this reason the database described in the following Sub-Sections 16.1 to 16.3, inclusive, has not been independently verified by MineFill. However, Mr Stone has been involved in the Project as an independent consultant since 1995, and has performed data verification for the Company.

All drillhole logs and surface exploration samples collected on the project site are compiled by Farallon in an Access relational database that has tables that are compatible with GEMS mining exploration software. For the purposes of geological and resource modelling, the Access data is exported to Maptek’s Vulcan software.

16.1 Database Description

At first, all drillhole logs and field data were entered into spreadsheets. As the project progressed the same data was entered directly into a project-specific database. Data for each of the key drillhole data tables (header, survey, geotechnical, lithology, density and sample description) are entered using a field data entry module located at the Campo Morado exploration/administration camp office.

Exploration information is validated, verified and corrected in the field; the data is then exported from the site database and transmitted, on a regular basis, to the Company’s Vancouver office where it is imported into the primary GEMS/Access database. The field data is merged with the analytical results in the Vancouver office. The compiled information is exported to Vulcan for further processing and modelling. The merged sample logs and analytical results are then reviewed by the Company’s/Farallon’s site personnel and, if necessary, checked against the relevant drillcore.

16.2 Verification Approach

Compiled data from the header, survey, assay, geology and geotechnical tables is validated in the Company’s Vancouver offices for missing, overlapping or duplicated intervals or sample numbers, as well as for matching drillhole lengths in each table. Drillhole collars and traces are reviewed on screen by a geologist, both in plan and section view, as a visual check on the validity of the location information.

As analytical data is returned from the assay laboratories it is merged with the sample logs and printed out. The gold, silver, copper, lead and zinc values are then verified against the original assay certificates provided by the laboratory. Particular attention is paid to laboratory re-runs where the analytical results are revised for QA/QC reasons, not least to ensure the correct data has been applied.

A satisfactory level of confidence may be attributed to the accuracy and reliability of the gold, silver, copper, lead, and zinc assay results provided by the analytical laboratories (including the



check laboratories described below). This statement is based on the results of the sample preparation and analytical quality assurance/quality control program:

• for purposes of the most recent resource estimations, verification and validation work was carried out and a only small number of errors were reported, although digital values not matching the analytical certificates was identified as an area of concern (most digital data was, however, found to be correct); and

• new certificates provided by the laboratory were placed in the drillhole files and the old certificates marked ‘superceded’ so that the revisions could be tracked.

Mislabeling of standards in sample logs was another identified source of error. This originated because the individual standard pulp bags (in packages of ten) were not labeled with the standard name, for QA/QC reasons. Personnel at site were, as a result, instructed to apply the sample number to the standard pulp and record it in the sample log with the standard name, as soon as they were used, to avoid recurrence of the problem.

16.3 Check Analyses

About ten percent of mainstream, G-9 “ore” samples are sent for check assay by AcmeLabs. The assay data verification approach earlier described was applied by the Company to the assay results; Table 16.1 summarizes the correlation coefficients for the 2004 to 2006 assay results, which coefficients reflect exceptional repeatability between the primary and check assay results for all five metals considered in analysis (gold, silver, copper, lead and zinc). At the time of writing (September 2007) the Company’s database has not yet been enlarged to include the validated 2007 primary and check assay results.

Table 16.1 Summary of G-9 Primary vs. Check Assay

Results, 2004 to 2006 Element Total

Data Pairs Correlation Coefficient

Gold 280 0.962 Silver 280 0.990 Copper 280 0.989 Lead 262 0.996 Zinc 262 0.996

Figures 16.1 to 16.5 detail the various data sets as scatter plots with regression lines. Each plot concentrates on the bulk of the available data, insofar as a small number of data pairs plot outside the selected plot areas, at points the exceed the selected X-Y scales. The plot areas were selected for presentation purposes only, they in no way influence the results that consider the full available datasets in each case.



Figure 16.1 – Check Analysis Results for Gold (2004 to 2006)

Figure 16.2 – Check Analysis Results for Silver (2004 to 2006)



Figure 16.3 – Check Analysis Results for Copper (2004 to 2006)

Figure 16.4 – Check Analysis Results for Lead (2004 to 2006)



Figure 16.5 – Check Analysis Results for Zinc (2004 to 2006)



17 ADJACENT PROPERTIES

The Campo Morado volcanogenic massive sulphide deposits occur in Guerrero Terrane rocks that host several other volcanogenic sulphide deposits in a similar geological environment. A past producer called Rey de Plata occurs 26 km to the northeast and the Campo Seco prospect is located 18 km to the southeast of Campo Morado. Similar volcanogenic sulphide deposits in older, more highly metamorphosed volcanic and sedimentary rocks of the Guerrero terrain occur at the operating Tizapa mine, located 90 km to the north-northwest.



18 MINERAL PROCESSING AND METALLURGICAL TESTING

18.1 Overview

18.1.1 El Largo, Naranjo and Reforma Mineralization

Between 1997 and 1998, the Company commissioned flotation testwork designed to produce selective copper, lead and zinc concentrates for sale to smelters, from samples of Naranjo and Reforma mineralization. Rougher/scavenger and open circuit cleaner flotation tests were performed by G&T Services in Kamloops, B.C. (ISO 2000-9001 accredited). While the concentrates produced were considered marketable, it was found that the amenability of the samples to differential flotation was adversely affected by the feed grades of the samples examined, as well as by their complex mineralogical compositions. In particular, the recoveries of precious metals to selective concentrates were disappointing. Accordingly, Advanced Mineral Technology Laboratory, University of Western Ontario Research Park (“AMTEL”, ISO 2000-9001 accredited) was commissioned to measure the deportment of gold and silver in the composite sample using advanced mineralogical characterization (Section 18.7). The results of this analysis, summarized in Table 18.1, do much to explain the reasons for precious metal rejection to the tailings streams: gold losses of 64 percent and silver losses of 72 percent were expected, based on the flotation of separate copper, zinc and lead concentrates.

Table 18.1 Precious Metal Distribution for the 1997 Composite Sample

Distribution (%) Occurrence Gold Silver Solid solution in pyrite In pyrite Free gold Solid solution in arsenopyrite In tetrahedrite In galena Other

41 6

25 21 - - 7

- 39 - -

50 6 5

Totals 100 100

The metallurgical results showed that effective pyrite rejection is a prerequisite to the production of marketable base metal concentrate grades from the Naranjo and Reforma deposits; it is evident from Table 18.1 that pyrite rejection would compromise the recovery of precious metals to the respective concentrates. It was, therefore, decided to examine alternative means of metal extraction, with a view to enhancing potential project economics. Specifically, serious



consideration was given to the application of hydrometallurgical methods by which copper, zinc and precious metals could be produced on site.

18.1.2 G-9 Mineralization

The results of the metallurgical testwork performed to date (September 2007) show that in contrast to El Largo, Naranjo and Reforma mineralization, conventional milling/flotation methods may be used for processing G-9 material, due mainly to key differences in its chemical and mineralogical characteristics. Precious metal recoveries nevertheless remain low, and for reasons similar to those outlined for the Naranjo and Reforma deposits.

Conventional milling/flotation is the preferred option for processing G-9 mineralization because reviews of other operations and internal assessments by the Company have shown that the application of hydrometallurgical methods are more expensive in terms of start-up capital costs and on-going operating costs per unit processed.

Figure 18.1 summarizes the G-9 processing flowsheet defined as a result of the metallurgical test programs described in the following Sub-Sections 18.2 to 18.6, inclusive that were, for the most part, compiled by MineFill from the December 13, 2006 Technical Report and a the aforementioned report by G&T Services dated April 18, 2007. Key information was checked by cross-referencing both Company news releases and the aforementioned report by G&T Services dated October 4, 2006. Detailed mill and process plant engineering is being carried out by M3 Engineering & Technology Corporation of Tucson, Arizona (see the Company’s news release dated March 22, 2007).

Studies show that a fully autogenous grinding (“FAG”) mill would best be employed (Section 18.7). Copper and zinc concentrates only might be produced from the high-grade starter zone, depending on the prevailing lead grades and mineralogy (i.e. the reverse circuit suggested by Figure 18.1 might not initially be required). Gold and silver will be produced as by-products only, due to the nature of the precious metals’ mineralization.

Figure 18.1 – The G-9 Processing Flowsheet

Feed

Zinc 1 ClTail

st

Zinc RoTail36µm K80 MBS

3418A

10µm K80

Cu/Pb Circuit Zn Circuit

Bulk Conto reverse circuit

ZincCon

MBS

10µm K80

LimeCuSO4SIPXReverse Circuit

Rev ConPb Con

Bulk Con

Rev TailCu Con

40°CNaCN



18.2 Scope of G-9 Metallurgical Test Programs

Under the Company’s direction and that of the Company’s consultant metallurgist (P. Taggart, P.Eng.), G&T Services has completed four flotation test programs on samples of G-9 mineralization. The reports are posted on the Company’s website (www.farallonresources.com) and may be identified as follows:

• Report #1 - G&T Services report number KM 1738, dated March 2006;

• Report #2 - G&T Services report number KM 1772, dated April 2006;

• Report #3 - G&T Services report number KM 1811, dated October 2006; and

• Report #4 - G&T Services report number KM 1951, dated April 18, 2007.

In addition, three other G-9 project-relevant reports were prepared during 2006:

• specialized mineralogical studies were carried out in 2006 by AMTEL (the results are presented in an AMTEL report entitled ‘Deportment of Gold and Silver in Campo Morado Zinc Rougher Tails’, dated October 3, 2006”);

• SGS Lakefield Research Limited (“SGS”) conducted small-scale autogenous grinding and IsaMill grinding tests on samples of G-9 mineralization (the results are presented in SGS’s Project 11335-001 report entitled ‘An Investigation into an Innovative Grinding System for the Campo Morado Circuit Based on Small-Scale Data’ that is dated October 4, 2006); and

• a project memorandum was issued by Xstrata Technology, in support of the IsaMill amenability tests performed by SGS (entitled ‘Isamill Circuit Design for Campo Morado’ and dated October 23, 2006).

18.3 G&T Services Report #1 – March 2006

The main objective of the first cycle of tests (“Report #1” tests) was to characterize the processing characteristics of G-9 mineralization by subjecting four samples (Table 18.2) to conventional flotation process protocols. The positions of the drillholes from which the samples were taken are summarized on Figure 18.2 (the holes highlighted by BLUE dots). Given the limited amount of drilling data available at the time the samples were taken, it was acknowledged at the time that they might not be representative of large amounts of the resource, either in terms of grade or mineralogical composition. MineFill concurs with this view.



Table 18.2 Source of Report #1 Metallurgical Samples

Sample Number

Drillhole Number

Deposit Zone

Intervals (m)

1 2 3 4

5420 5467 5483 5498

East East

Central East

380.4 to 391.4 317.3 to 332.1 481.4 to 491.5

429.2 to 446.9 and 469.9 to 473.3

Figure 18.2 - Metallurgical Samples, G-9 Deposit,

Reports #1 to #3 Test Cycles In common with the second (“Report #2”), third (“Report #3”) and fourth (“Report #4”) cycles of metallurgical tests, and as per the standard procedures earlier outlined:

• the samples were prepared by ALS Chemex in Guadalejara, Mexico (ISO 9001-2000 accredited) and by G&T Services in Kamloops, B.C. (ISO 9001-2000 accredited);

• model and chemical analyses were undertaken prior to bench scale flotation tests, which tests were carried out by G&T Services in Kamloops, B.C.; and

• flotation testwork was conducted by G&T Services in Kamloops, B.C.

G&T Services had previously conducted nearly all the flotation testwork on samples of Naranjo and Reforma mineralization.



18.3.1 Chemical and Mineralogical Analysis

Each of the four Report #1 samples was subjected to chemical and mineralogical analysis, the results of which are summarized on Table 18.3. For purposes of comparison, Table 18.3 includes details of the chemical composition of the Naranjo/Reforma composite that formed the basis for the 1997 metallurgical program.

It may be seen from Table 18.3 that the base metal contents of the Report #1 composite samples display considerable variability, with the exception of the copper grade. The zinc contents of the G-9 samples are consistently higher than those of the November 1997 composite. Of note are the “Pb sol” values that represent 40 to 50 percent of the total lead present, which later work identified as lead oxides that adversely affect the metallurgical performance of lead.

Table 18.3 Chemical Composition of the Report #1 Composites

Sample Number

Au (g/t)

Ag (g/t)

Cu (%)

Pb (%)

Zn (%)

S (%)

Pb sol

1 2 3 4

1.12 7.56 5.45 1.18

68 568 196 147

1.57 1.17 1.29 1.40

0.68 4.42 0.63 1.18

14.70 7.45 11.20 7.80

39.9 33.5 28.7 9.70

0.26 2.10 0.25 0.41

Nov. 1997 3.10 158 1.00 1.10 3.40 N/A N/A Notes: Pb sol denotes lead mineralization that is soluble in ammonium acetate

Nov. 1997 = composite sample of Reforma and Naranjo material The main sulphide minerals present in the Report #1 composites were identified by optical microscopy; they are summarized on Table 18.4 (which, for purposes of comparison, also includes details of the mineralogical composition of a Naranjo/Reforma composite).

Table 18.4

Mineral Composition of the Report #1 Composites Sample Number

Cs (%)

Ga (%)

Sp (%)

Py (%)

Gn (%)

1 2 3 4

5.2 3.4 3.7 3.7

0.5 3.5 0.4 0.7

22.7 10.8 16.2 10.7

57.2 60.0 42.4 10.3

14.3 22.4 37.2 74.6

Nov. 1997 2.7 1.3 5.1 75.3 15.6 Legend: Cs - copper sulphides, principally chalcopyrite, Ga - galena,

Sp - sphalerite, Py – pyrite and Gn - non-sulphide gangue Note: Nov. 1997 = composite sample of Reforma and Naranjo material

The main sulphide minerals in the Report #1 composites (chalcopyrite, galena, sphalerite and pyrite) were the same as those that predominated in the Naranjo/Reforma composite. However, the pyrite contents of the G-9 samples were lower than those measured in the November 1997 Naranjo/Reforma composite. Sample 4 was an example of stringer mineralization and, as such, it would normally be expected to contain significantly lower amounts of sulphide mineralization.



Reductions to the amount of pyrite, with attendant increased amounts of non-sulphide gangue, enhance metallurgical performance.

Polished sections of the different composite samples were also examined under an optical microscope to assess the degree of liberation of the principal minerals. The results are summarized on Table 18.5, from which it may be concluded that:

• while the mineralization was finely disseminated, grinding to K80 40 microns resulted in copper and zinc sulphide liberations that are conducive to effective rougher flotation;

• the liberation of the non-sulphide gangue is consistently high, suggesting that effective separation of the sulphides and non-sulphides should be achievable in the rougher flotation at the range of grinds examined; and

• galena liberation is variable and consistently poor to moderate, which suggests a limited ability to achieve good lead metallurgical performance.

Table 18.5

Report #1 - Mineral Liberation in Two Dimensions Mineral Liberation (%) Sample

Number Sizing

(K80 microns) Cs Ga Sp Py Gn 1 2 3 4

40 51 63 44

61 43 50 60

53 26 12 35

71 44 52 60

76 60 60 64

84 85 80 94

Nov. 1997 47 59 42 55 71 68 Legend: Cs - copper sulphides, principally chalcopyrite, Ga - galena,


Extrapolations of the detailed modal analysis data suggest that rougher/scavenger performance is relatively insensitive to minor changes in primary grind. Automated Digital Image Scanning (ADIS) techniques were used to provide some preliminary indication of gold deportment. Free gold and gold grains physically attached to galena and copper sulphides were observed. The gold grain size was typically within the ten to 15 microns range. It was expected that this gold would report to the flotation concentrates. However, it was acknowledged that an in-depth mineralogical examination would be required to determine the deportment of precious metals.

18.3.2 Metallurgical Results

The Report #1 program comprised a series of tests in which the effects of a variety of key conditions were examined by generally adopting the flowsheet summarized on Figure 18.3. The tests were selected by considering the protocols that produced the best metallurgical performance during the preliminary scoping work. No attempt was made to separate copper from lead in the bulk concentrate. Conventional reagent suites were examined, although no attempt was made to optimize reagent consumptions. The results of selected tests are summarized on Table 18.6, from which it may be concluded that:



• the bulk concentrate contained copper and lead, the former in amounts that almost compare with low-grade, selective copper concentrates (Sample 2 produced a lower copper grade [6.9%], due to the relatively higher lead grade [27.0%]);

• though not studied, the results indicate potential to produce selective concentrates of copper and lead, using conventional copper/lead separation techniques; and

• favorable zinc concentrate grades and recoveries were achieved in all tests (the results highlighted in RED on Table 18.6), especially given the preliminary/scoping level nature of the test program; whereas

• the recoveries of precious metals were consistently poor.

Figure 18.3 - Report #1 Flotation Test Flowsheet

Table 18.6 Report #1 – Preliminary Metallurgical Test Data

Assay Distribution (%) Product Au

(g/t) Ag

(g/t) Cu (%)

Pb (%)

Zn (%)

Au Ag Cu Pb Zn

Sample 1 - Test 43 Feed Bulk con. Zinc con.

1.2 3.8 0.8

62 382 66

1.6 24.0 0.5

0.6 6.9 0.2

13.9 3.8 51.6

100 18 14

100 34 22

100 80 6

100 62 8

100 1 78


6.4 28.6 3.6

594 2,237 360

1.2 6.9 0.7

4.1 27.0 2.2

7.0 3.9 54.3

100 47 5

100 40 5

100 62 5

100 69 5

100 6 69


4.7 28.8 2.3

171 1,373 154

1.3 20.7 0.7

0.6 6.0 0.4

10.9 3.5 52.4

100 23 9

100 30 16

100 60 10

100 41 13

100 1 88


0.8 12.0 1.0

129 1,215 130

1.3 22.1 0.8

1.0 17.7 0.7

6.9 5.2 59.3

100 40 10

100 27 9

100 48 5

100 50 6

100 2 75

Note: The word “recovery” is generally used to apply to concentrates only. The word “distribution” is the common term applied when talking about feed and concentrates, tails etc.

Feed

Zn Cl Tails Bulk Cl

Tails

RougherTails

25-40µm K80

7µm K80 10µm K80

Cu/Pb Circuit Zn CircuitPrefloat Con

Bulk Concentrate

Zinc Concentrate

Cond



18.4 G&T Services Report #2 – April 2006

The objective of the Report #2 cycle of tests was to examine variability in metallurgical response when treating twelve different G-9 mineralized samples to produce bulk copper/lead and zinc concentrates. Drillcore samples for metallurgical testing were taken from nine diamond drillholes (Table 18.7), three of which came from the Southeast Zone and the balance from the North Zone (see Figure 18.2). The samples were considered to be representative of the G-9 mineralization that had been drilled up to the time of sample preparation. Samples of entire intercepts were prepared into composites that were homogenized prior to flotation.

Table 18.7 Source of Report #2 Metallurgical Samples Sample Number

Drillhole Number

Deposit Zone

Intervals (m)

2 3 4 5 6 7 8 9

10 11 12 13

5468 5474 5479 5481 5481 5484 5485 5486 5486 5486 5496 5498

North North North North North

Southeast Southeast

North North North North

Southeast

491 to 502 434 to 448 423 to 442 459 to 495 508 to 523 399 to 406 344 to 351 504 to 509 536 to 545 549 to 577 522 to 531 429 to 447


Each of the Report #2 samples was subjected to chemical analysis, the results of which are summarized on Table 18.8. For purposes of comparison, Table 18.8 includes details of the chemical composition of a Naranjo/Reforma composite that formed the basis for the 1997 metallurgical program.



Table 18.8 Chemical Composition of the Report #2 Composites

Sample Number

Au (g/t)

Ag (g/t)

Cu (%)

Pb (%)

Zn (%)

S (%)

Pb sol

2 3 4 5 6 7 8 9

10 11 12 13

1.53 3.23 1.70 2.32 2.63 4.24 4.90 2.56 3.99 15.57 2.62 2.00

74 230 100 250 196 272 367 113 160 701 126 181

0.41 1.59 0.55 2.79 1.62 0.59 2.02 1.53 1.50 0.89 0.70 1.92

0.54 1.15 0.69 1.72 0.90 2.48 1.34 0.63 1.07 1.04 0.95 3.09

4.94 2.50 6.93 7.75 17.4 3.31 5.45 9.35 9.80 5.37 3.36 21.0

45.9 37.2 37.1 34.9 24.9 44.6 37.9 37.6 28.8 31.5 39.0 32.9

0.28 0.72 0.40 0.87 0.44 1.41 0.70 0.35 0.50 0.45 0.37 1.11

Nov. 1997 3.10 158 1.00 1.10 3.40 N/A N/A Notes: Pb sol denotes lead mineralization that is soluble in ammonium acetate

Nov. 1997 = composite sample of Reforma and Naranjo material

As with the Report #1 composite samples, the base metal contents of the Report #2 composites displayed considerable variability. The zinc contents of the G-9 samples were consistently higher than those of the November 1997 composite. The presence of soluble (in ammonium acetate) lead mineralization was again noted, in similar proportions to the total lead contents observed in the Report #1 samples.

The main sulphide minerals present in the Report #2 composites were identified by optical microscopy and are summarized on Table 18.9 (which, for purposes of comparison, includes details of the mineralogical composition of the 1997 Naranjo/Reforma composite). Polished sections of the different samples were also examined under the optical microscope to assess the degree of liberation of the principal minerals. The results are summarized on Table 18.10.



Table 18.9 Mineral Composition of the Report #2 Composites

Sample Number

Cs (%)

Ga (%)

Sp (%)

Py (%)

Gn (%)

2 3 4 5 6 7 8 9

10 11 12 13

1.2 4.5 1.6 7.9 4.6 1.7 5.8 4.4 4.3 2.5 2.5 5.5

0.3 0.6 0.4 1.1 0.7 1.4 0.8 0.4 0.8 0.6 0.6 2.1

7.7 3.4 10.1 10.8 25.0 4.7 8.5 13.5 14.0 7.4 7.4 30.1

80.6 64.4 63.3 53.4 31.9 80.6 62.9 58.5 43.4 53.3 53.3 39.2

10.3 27.1 24.6 26.8 37.8 11.6 22.0 23.2 37.5 36.2 36.2 23.2

Nov. 1997 2.7 1.3 5.1 75.3 15.6 Legend: Cs - copper sulphides, principally chalcopyrite, Ga - galena,


Table 18.10 Report #2 - Mineral Liberation in Two Dimensions

Mineral Liberation (%) Sample Number

Sizing (K80 microns) Cs Ga Sp Py Gn

2 3 4 5 6 7 8 9

10 11 12 13

31 39 37 36 52 53 34 42 49 40 40 29

60 56 51 56 49 36 45 58 48 47 47 57

36 26 28 27 24 24 21 25 23 22 22 36

61 57 50 59 69 34 50 61 56 52 52 77

87 62 70 69 54 69 69 71 60 74 74 72

89 79 82 79 87 84 79 91 83 90 91 90

Nov. 1997 47 59 42 55 71 68 Legend: Cs - copper sulphides, principally chalcopyrite, Ga - galena,


It may be concluded from consideration of the results summarized on Table 18.9 that while the compositions were quite variable, it is evident that the pyrite contents of the Report #2 composites were generally lower than those found in the November 1997 composite. The increased proportions of non-sulphide gangue reflect the lower pyrite contents in the G-9 samples.

It may be concluded from the results summarized on Table 18.10 that the trends identified in the analysis of the four samples of the Report #1 test cycle were confirmed in the Report #2 work:



• G-9 mineralization is generally finely disseminated;

• the liberation of galena is consistently poor;

• with one exception (Sample 7), sphalerite liberation is reasonably good; and

• the liberation of non-sulphide gangue is high and conducive to effective sulphide separation from the non-sulphides in rougher/scavenger flotation.


Rougher kinetic and open-circuit cleaner flotation tests were performed on each of the twelve Report #2 composites, applying a flowsheet and reagent conditions that were essentially similar to those adopted in the Report #1 program. The intent was not to optimize either metallurgical performance or reagent conditions, but rather to assess the variability of metallurgical responses between samples subjected to similar flotation conditions. As before, no attempt was made to produce selective copper and lead concentrates. The results of the Report #2 tests are summarized on Table 18.11, from which it may be concluded that, as in the Report #1 program:

• the copper contents of the bulk concentrate (the results highlighted in GREEN on Table 18.11) generally approximate those contained in low-grade selective copper concentrates;

• lead metallurgical performance was poor (the results highlighted in BLUE on Table 18.11), reflecting in part the complex lead mineral assemblages; and

• favorable zinc metallurgical performance was achieved (the results highlighted in RED on Table 18.11), due in part to the feed grade, the degree of mineral liberation and the apparent clean sphalerite present in the G-9 deposit; whereas

• precious metal recoveries were consistently low.

18.5 G&T Services Report #3 – October 2006

For purposes of the Report #3 program, G&T Services prepared a single master composite from the twelve individual samples examined in Report #2 program. The grades were at the time believed to approximate to the projected average mill feed grades for the G-9 deposit, based on the drillhole information available at the time. For this reason, as well as the reasons apparent from the summary of the Report #4 program presented in Sub-Section 18.6, the Report #3 master composite is hereinafter referred to as the “Average-Grade” composite.

A series of batch rougher and cleaner tests were performed to investigate initial processing criteria and flowsheet configuration; locked cycle tests were carried out to confirm the viability of the selected flowsheet. Modal assessments on selected cycle test products were also carried out and detailed chemical analyses of payable and deleterious elements contained in the produced copper, lead and zinc concentrates were performed. The main objectives of the program were to:



Table 18.11 Report #2 – Preliminary Metallurgical Test Data

Assay Distribution (%) Product Au

(g/t) Ag

(g/t) Cu (%)

Pb (%)

Zn (%)

Au Ag Cu Pb Zn


1.7 11.9 1.7

67 320 122

0.4 24.3 0.7

0.5 6.1 0.8

4.8 2.0 53.6

100 7 7

100 4 12

100 50 9

100 11 10

100 0 71


3.2 10.0 3.2

219 928 318

1.6 16.4 1.4

1.1 7.1 1.8

2.4 2.1 51.3

100 22 3

100 30 5

100 72 3

100 46 5

100 6 67


1.8 22.1 1.5

99 886 210

0.6 20.1 0.5

0.6 10.6 0.6

6.4 3.4 48.4

100 19 8

100 14 21

100 55 9

100 25 10

100 1 74


2.5 4.2 1.2

251 910 220

2.8 21.7 0.8

1.6 8.1 1.1

7.6 2.7 53.4

100 18 5

100 39 10

100 83 3

100 53 8

100 4 80


2.6 14.4 2.1

188 718 176

1.5 26.3 0.4

0.8 5.3 0.6

15.7 2.4 52.6

100 24 22

100 17 26

100 75 8

100 28 21

100 1 92


4.2 16.7 6.6

254 1,082 340

0.6 21.2 1.1

2.2 10.9 3.2

3.2 1.3 27.9

100 3 2

100 3 2

100 28 3

100 4 2

100 0 12


4.9 8.7 5.2

352 826 344

2.0 24.8 1.5

1.3 6.2 1.1

5.4 2.2 49.1

100 7 7

100 10 7

100 52 5

100 20 6

100 2 62


2.6 7.0 0.9

103 520 110

1.6 25.2 0.6

0.6 5.2 0.5

8.8 4.2 56.9

100 12 4

100 23 13

100 73 5

100 38 9

100 2 79


4.0 18.8 2.2

146 548 124

1.5 25.5 0.6

1.0 7.0 0.9

8.7 3.1 52.3

100 19 6

100 16 10

100 71 5

100 28 10

100 1 71


16.5 90.8 10.7

677 2,850 706

0.9 23.5 0.8

1.0 8.9 0.9

5.4 2.8 53.0

100 12 5

100 9 8

100 58 7

100 20 7

100 1 77


2.7 11.6 2.5

122 914 198

0.7 22.4 0.8

0.9 6.4 1.4

3.2 2.0 47.1

100 7 4

100 13 8

100 55 5

100 12 8

100 1 69


2.1 3.9 0.9

175 492 110

1.9 22.2 0.5

2.8 16.9 0.9

20.0 4.6 55.3

100 12 13

100 18 19

100 74 8

100 38 10

100 1 85

Note: The word “recovery” is generally used to apply to concentrates only. The word “distribution” is the common term applied when talking about feed and concentrates, tails etc.



• study various flowsheets with a view to producing selective copper and lead concentrates from the bulk concentrate;

• commence reagent optimization studies; and

• generate detailed selective concentrate specifications.

The effect of grind size on flotation feed and regrind size the concentrates was also considered within the scope of the Report #3 study, which results are reported in conjunction with the Report #4 results described in Sub-Section 18.6.


The Average-Grade composite was subjected to chemical and mineralogical analysis, the results of which are summarized on Tables 18.12 and 18.13.

. Table 18.12

Chemical Composition of the Report #3 Average-Grade Composite

Sample Au (g/t)

Ag (g/t)

Cu (%)

Pb (total, %)

Pb (oxide, %)

Zn (%)

Average-Grade Composite 4.47 257 1.35 1.24 0.50 7.25

Table 18.13 Mineral Composition of the Report #3 Average-Grade Composite

Number Cs (%)

Ga (%)

Sp (%)

Py (%)

Gn (%)

TOC (%)

Average-Grade Composite 4.1 0.8 11.5 56.4 27.3 0.2 Legend: Cs - copper sulphides, principally chalcopyrite, Ga - galena, Sp - sphalerite,

Py - pyrite and Gn - non-sulphide gangue, TOC – total organic carbon

It may be concluded from consideration of the results summarized on Tables 18.12 and 18.13 that the Average-Grade composite contained about 7.3 percent (by weight) zinc, almost all of which was present as low interstitial iron sphalerite. It also contained about 1.4 percent copper, almost all of which was present as chalcopyrite. Approximately 1.2 percent of the feed was present as lead, about 40 percent of which was present as lead oxide with the balance comprising galena. It was anticipated that the presence of lead oxide would adversely affect lead performance.

Pyrite was the dominant iron-bearing mineral; it comprised about 56 percent of the feed mass. Fortunately, the two to one mass ratio of pyrite to non-sulphide gangue is relatively favorable for helping with the rejection of pyrite into the tailings stream during selective flotation of chalcopyrite, galena and sphalerite. However, the individual composites that were used to make up the Average-Grade composite had pyrite to gangue ratios of between one to one and eight to one, which suggested that variability in metallurgical response could reasonably be expected.



The Average-Grade composite also contained relatively low levels of total organic carbon (“TOC”), which is hydrophobic and is easily recovered into flotation froths. The total organic carbon levels in the individual composites that were used to make up the Average-Grade composite were variable: the values ranged from 0.15 and 0.74% TOC, with a standard deviation of ±0.16.

Of the 4.47 g/t gold content of the Average-Grade composite, about one third was either liberated or locked as binary structures with chalcopyrite and galena. Most of the remaining gold was observed to be present as binary or multi-phase structures contained within pyrite.


The flowsheet, test conditions and metallurgical balance and that yielded the best results during the Report #3 cycle of tests are presented as Figure 18.4 and on Tables 18.14 and 18.15, respectively. The following comments apply.

Figure 18.4 – The Report #3 Flowsheet

Table 18.14 Nominal Flotation Test Conditions, Report #3 Average-Grade Composite

Total reagent Addition Rates (g/t) Circuit MBS 3418A NaCN CuSO4 SIPX

Bulk Circuit Reverse Circuit

Zinc Circuit

3,600 - -

205 - -

- 660

-

- -

1,200

- -

150 Note: Total addition rates added to the roughers and cleaners



Table 18.15 Average Metallurgical Balance, Report #3 Average-Grade Composite

Assays Distribution (%) Product

Mass (%)

Au (g/t)

Ag (g/t)

Cu (%)

Pb (%)

Zn (%)

Fe (%)

S (%)

Au

Ag

Cu

Pb

Zn

Fe

S

Flotation Feed Copper Conc. Lead Concentrate Zinc Concentrate Zinc Cleaner Tail Zinc Rough. Tail

100 4.6 1.9 12.3 21.0 60.2

4.33 2.86

35.40 4.60 4.75 3.27

213 401

3,224 194 199 113

1.35 20.40 8.53 0.53 0.36 0.19

1.26 2.05

34.10 0.65 0.87 0.44

7.87 1.21 6.05

55.10 2.61 0.60

27.1 35.2 17.3 6.5 38.7 26.9

33.1 37.9 27.6 34.5 42.6 29.4

100 3

15 13 23 46

100 9

28 11 20 32

100 69 12 5 6 9

100 8

51 6

15 21

100 1 1

86 7 5

100 6 1 3

30 60

100 5 2

13 27 53

Note: The metallurgical balance is based on an average of tests 58 and 60

18.5.3 Comments

In summary, the flowsheet summarized on Figure 18.4 involved processing the material at K80 36 microns using fresh process water (for the reasons outlined in Sub-Section 18.5.4). Due to the low levels of carbonaceous material in the Average-Grade composite, the pre-flotation stage was omitted from the flowsheet. Elevated pulp temperature in the reverse rougher circuit proved to be beneficial in copper-lead separation. Under these conditions, three marketable concentrates were produced:

• a copper concentrate grade of 20% Cu with a 69 percent copper recovery (the results highlighted in GREEN on Table 18.15);

• a lead concentrate grade of 34% Pb with a 51 percent lead recovery (the results highlighted in BLUE on Table 18.15); and

• a zinc concentrate grade of 55% Zn with an 86 percent zinc recovery (the results highlighted in RED on Table 18.15).

The lead concentrate contained 35 grams per tonne of gold and 3,200 grams per tonne of silver. The lead and copper concentrates contained elevated levels of bismuth, fluorine and selenium. The zinc concentrate contained high concentrations of cadmium, bismuth, mercury and fluorine, which elements might attract smelter penalties.

Preliminary test work performed on the reverse circuit copper concentrate revealed that the grade of the concentrate could be increased from about 20 percent to 27 percent copper, albeit at some loss in copper recovery (the results of batch cleaning a low-grade copper concentrate indicate that and additional ten percent of the copper would be lost as a result of producing a higher grade copper concentrate).

Most of the mineral losses during the flotation process were due to rejection of liberated chalcopyrite, galena and sphalerite grains sized smaller than ten microns into the tailings streams. It was concluded that it would be necessary to develop procedures to improve the recovery of finely sized, liberated grains.



18.5.4 Water Impacts

The baseline tests using fresh water produced results that were superior compared to the recycled water tests, which emphasized the importance of a purification plant for recycled process water:

• with fresh water, and on average, about 71 percent of the copper, 32 percent of the lead and 87 percent of the zinc was recovered into selective products containing 19% Cu, 35% Pb and 55% Zn; and

• tests that utilized immediately produced process water produced inferior metallurgical profiles for copper and zinc (copper and zinc recoveries reduced by about nine units) and the grade of the copper and zinc concentrates reduced to 15 and 52 percent, respectively.

18.6 G&T Services Report #4 – April 2007

The results of diamond drilling and resource modelling that post-dated the Report #3 program showed that the mill feed grades during the initial years of operation will be higher than the Average-Grade composite grades. A program was, therefore, undertaken to investigate the metallurgical response of a composite of high-grade mineralization from the G-9 Southeast Zone. The objectives of the program were to:

• assess and compare the mineralogy and locking characteristics of the composites, using established modal techniques;

• perform batch rougher and cleaner tests on high-grade, G-9 mineralization to investigate flowsheet options and reagent conditions;

• establish that the design flowsheet configuration being used for mill design would apply to the high-grade starter zone;

• perform locked cycle tests to establish the likely metallurgical performance of high-grade, G-9 mineralization; and

• perform feed grind and concentrate regrind tests to enable appropriate feed grinds to be adopted for the initial years of mine production.

For purposes of analysis, a single composite sample was compiled from twenty four individual intercept samples taken from drillholes 6575, 6578 and 6580 (the “High-Grade” composite). In the opinion of MineFill, the High-Grade composite is representative of high-grade mineralization from the G-9 Southeast Zone.




The results of the chemical and mineralogical analyses carried out on the High-Grade composite are summarized on Tables 18.16 and 18.17 that, for purposes of comparison, also summarize the results for the Average-Grade composite considered in the Report #3 study.

Table 18.16 Chemical Composition of the Report #4 High-Grade Composite

Sample

Au (g/t)

Ag (g/t)

Cu (%)

Pb (total, %)

Pb (oxide, %)

Zn (%)

High-Grade Composite 1.13 100 2.21 0.70 0.42 14.8 Master Composite (#3) 4.47 257 1.35 1.24 0.50 7.25

Table 18.17 Mineral Composition of the Report #4 High-Grade Composite

Number Cs (%)

Ga (%)

Sp (%)

Py (%)

Gn (%)

High-Grade Composite 6.2 0.4 21.9 54.0 17.5 Master Composite (#3) 4.1 0.8 11.5 56.4 27.3

Legend: Cs - copper sulphides, principally chalcopyrite, Ga - galena, Sp - sphalerite, Py - pyrite and Gn - non-sulphide gangue

Comparison of the High-Grade and Average-Grade composites reveals significant differences in their mineralogies: • about 83 percent of the High-Grade composite comprises sulphide minerals, compared with

73 percent in the Average-Grade composite; • the High-Grade composite contained significantly higher concentrations of chalcopyrite and

sphalerite (six percent and 22 percent of the composite mass, respectively) compared with four percent and 12 percent, respectively, for the Average-Grade Composite; and

• there is the comparatively low level of galena in the High-Grade composite (which is

insufficient galena to warrant investigating a separate circuit to produce a selective lead concentrate).


The flowsheet, test conditions and metallurgical balance and that yielded the best results during the Report #4 cycle of tests are presented as Figure 18.5 and Tables 18.18 and 18.19, respectively. It should be noted that the relatively high levels of galena and precious metal values in the Average-Grade composite required a flowsheet that incorporated a lead reverse



circuit to produce a clean copper concentrate and a low-grade lead concentrate containing high precious metal values. Due to the low galena and precious metal contents in the High-Grade composite, the reverse circuit was not included in the Report #4 cycle test flowsheet.

Figure 18.5 – The Report #4 Flotation Test Flowsheet

Table 18.18 Nominal Flotation Test Conditions, Report #4 High-Grade Composite

Total reagent Addition Rates (g/t) Circuit MBS 3418A Lime CuSO4 SIPX

Primary Grind Cu Rougher Cu Regrind Cu Cleaners Zn Rougher Zn Scavenger Zn Regrind Zn Cleaners

3,500 -

1,000 400

- - - -

- 70 -

50 - - - -

- - -

>500 3,000

- 1,000

-

- - - -

1,500 -

200

- - - -

80 50 -

130 Note: Total addition rates added to the roughers and cleaners

Table 18.19

Average Metallurgical Balance, Report #4 High-Grade Composite Assays Distribution (%)

Product

Mass (%)

Au (g/t)

Ag (g/t)

Cu (%)

Pb (%)

Zn (%)

Au

Ag

Cu

Pb

Zn

Flotation Feed Copper Conc. Zinc Concentrate Zinc Cleaner Tail Zinc Rough. Tail

100.0 8.3

27.0 14.0 50.7

1.13 1.78 0.66 1.87 1.08

77 256 101 107 27

2.36 24.00 0.73 0.40 0.28

0.74 4.81 0.64 0.42 0.22

15.50 4.40

54.10 1.30 0.92

100 13 16 23 48

100 28 35 19 18

100 84 8

2 6

100 54 23

8 15

100 2 94

1 3

Note: The metallurgical balance is based on an average of tests 20 and 21



The results summarized on Table 18.19 indicate that a zinc concentrate grade of 54% Zn can be achieved with a 94 percent zinc recovery (the results highlighted in RED). Similarly, a copper concentrate grade of 24% Cu can be produced with an 84 percent copper recovery (the results highlighted in GREEN). This reflects a significant overall improvement in the metallurgical response of high-grade G-9 mineralization compared with average-grade mineralization/the Average Grade composite. In particular the zinc recoveries were significantly higher and a modest improvement in silver recovery (63 percent versus 48 percent) was achieved.

18.6.3 Mineral Fragmentation

The effects of flotation feed grinds and concentrate regrinds on metallurgical performance were tested as part of the #4 program. Table 18.20 summarizes the grinds that were applied in the locked cycle tests; Table 18.21 summarizes the distribution of minerals in the High-Grade and Average-Grade composites. The following comments apply.

Table 18.20

Product Grinds for Report #4 Locked Cycle Tests, K80 Microns Product

High-Grade Composite

Average-Grade Composite

Flotation Feed Copper Rougher Concentrate Zinc Rougher Concentrate

87 microns 14 microns 18 microns

36 microns 10 microns 10 microns

Table 18.21 Distribution of Minerals in the Report #4 High-Grade and

Report #3 Average-Grade Composites Distribution (%)

High-Grade Composite Distribution (%)

Average-Grade Composite Mineral Class

Cp Ga Sp Py Gn Cp Ga Sp Py Gn Liberated Grains Binary with Cp Binary with Ga Binary with Sp Binary with Py Binary with Gn Multiphase Particles

56 -

1 19 14 <1 10

37 3 -

27 6 <1 27

67 11 2 -

13 2 5

76 6 1 13 -

1 3

85 <1 1 3 7 -

4

53 -

<1 10 20 <1 17

37 <1 -

16 16 <1 31

53 9 1 -

23 1 13

73 6 1 8 -

6 6

90 <1 <1 -

6 -

3 Legend: Cs - copper sulphides, Ga - galena, Sp - sphalerite, Py - pyrite and Gn - non-sulphide gangue

Comparison of the test results for the High-Grade (Report #4) and Average-Grade (Report #3) composites indicates that significantly coarser grinds can be adopted for the high-grade starter zone (which will not be incorporated into mill design for the initial production years and will result in both energy savings and improved concentrate settling and filtration characteristics):



• following grinding of the High-Grade and Average-Grade composites to a nominal K80 40 microns, the fragmentation profiles for the two composites were found to be very similar, as the results summarized on Table 18.21 suggest; however

• about 65 percent of the sphalerite in the High-Grade composite was liberated, compared with 53 percent for the Average-Grade composite, which permits the application of coarser rougher and zinc cleaner circuit feed sizings with no apparent loss in metallurgical performance;

• using a split rougher scavenger flowsheet configuration, about half of the combined zinc rougher and scavenger concentrate mass could by-pass the zinc regrind circuit, which by-pass material contained about 60 percent of the zinc in the feed;

• the scavenger concentrate was reground to K80 18 microns and, along with the rougher concentrate, upgraded in four cleaning stages to produce a concentrate containing 94 percent of the zinc in the feed and assaying about 54% Zn; and

• following grinding of the High-Grade composite to K80 87 microns and regrinding the copper rougher concentrate to K80 14 microns, a final copper concentrate was produced through three cleaning stages, which yielded about 84 percent of the copper assaying 24% Cu.

18.7 Ancillary Test Programs

AMTEL was commissioned to examine the deportment of gold and silver in final tailings, to better understand the reasons for the poor precious metal recoveries, as well as to identify the form and distribution of the lead minerals soluble in ammonium acetate in the final tailing. AMTEL determined that:

• mineralogical constraints were responsible for most of the precious metal losses to the final tailings;

• while fine free and simple binary gold particles were observed, the precious metals in the tailings were primarily associated with pyrite and as such it is unlikely that significant improvements in silver and gold recoveries could be achieved;

• all lead contained in the tailings was present in sulphide form, but that the precise form and deportment of the lead mineral remain to be determined; and

• the portion of lead mineral which is soluble in ammonium acetate appears to behave as oxide mineralization in the flotation circuit.

SGS conducted grinding tests to confirm the amenability of the G-9 mineralization to FAG milling, which was practiced at the nearby Rey de Plata operations, with the attendant reductions in operating costs. Further, flotation testwork performed by G&T Services indicated that metallurgical results could be improved by grinding in the inert environment afforded by FAG milling. The results of small-scale tests confirmed that FAG milling could be successfully adopted.



A second objective of SGS’s work was to confirm that IsaMills could be used to grind the FAG product to P80 35 microns, being the required flotation feed size. The IsaMill technology, successfully developed and commercially-adopted by Xstrata and others, provides an energy efficient and inert environment in which ceramic beads or sand is used as the grinding media. The laboratory-scale test program confirmed that IsaMills could be effectively used in the flotation feed, and rougher concentrate regrind applications. Xstrata technical specialists provided guidance to SGS throughout the test program and issued a supportive memorandum, upon completion of the work and analysis of the data produced.

19 MINERAL RESOURCE ESTIMATES

The Company has compiled mineral resource estimates for the El Largo, El Rey, Naranjo, Reforma and G-9 deposits. The preliminary estimates are detailed in June 24, 2005 Technical Report, the most recent estimates are detailed in the December 13, 2006 Technical Report and it is these that are considered here. It is emphasized that, for the metallurgical reasons discussed in Section 18, the G-9 deposit has been targeted for immediate project advancement, with the option of processing mineralized material from Naranjo, Reforma and other Campo Morado deposits, using hydrometallurgical methods, at some future date.

19.1 El Largo, El Rey, Naranjo and Reforma Deposits

Comprehensive details of the Company’s latest, NI 43-101 compliant mineral resource estimates for the El Largo, El Rey, Naranjo and Reforma deposits are presented in the December 13, 2006 Technical Report. The resource estimates were compiled by Qingping Deng, Ph.D., C.P.G. of Behre Dolbear, assisted by Ms Weiping Chen. Mr. Deng is an independent qualified person as defined under NI 43-101. For the reasons earlier outlined, the El Largo, El Rey, Naranjo and Reforma deposits offer longer-term Project potential.

19.1.1 Summary of Methodology

The Company’s resources for the El Largo, El Rey, Naranjo and Reforma deposits were estimated in accordance to the definitions stated in the Canadian Institute of Mining and Metallurgy and Petroleum Standards on Mineral Resources and Mineral Reserves adopted by the CIM Council on November 14, 2000 (CIMM 2000). The resource estimation procedure included the following tasks:

• verification of entered assay data in an electronic assay database, from original assay certificates;

• compilation of three-dimensional (“3-D”) solid models for each deposit, including considerations of capping grades (that were individually defined for each deposit, based on assay probability distributions) and historical mining in the case of the Reforma deposit; and



• estimation of the mineral resources using a block modelling technique.

19.1.2 Resource Summary

The model blocks within the defined deposit solids were classified into Indicated and Inferred resource categories, based on the block location. The results, by zinc grade cut-off, are summarized on Table 19.1. The resource estimate for the El Largo deposit is dated June 2005 and the resource estimates for the El Rey, Naranjo and Reforma deposits are dated September 2005. The same resource estimates are detailed in the Company’s news release of September 19, 2005, but in terms of Gross Metal Value, quoted in US dollars per tonne.

In the opinion of MineFill the June and September 2005 mineral resource estimates are fully compliant with:


• the CIM Best Practice guidelines for Estimation of Mineral Resources and Mineral Reserves dated November 23, 2003.

19.2 G-9 Deposit

A preliminary estimate of the resources in the G-9 deposit is stated in the November 2005 Technical Report. Subsequent exploration effort (predominantly drilling) has been focused on the G-9 deposit, for the reasons described in Section 12. The results identified significant additional resources in an expanding G-9 deposit. An updated estimate of resources was as a result compiled by the Company, which update was based on the results of drilling to October 2006 (134 holes comprising about 67,000 metres of drilling). The November 2006 resource update is described and defined in the December 13, 2006 Technical Report. Both resource estimates for the G-9 deposit were completed by David Gaunt, P.Geo. Mr. Gaunt is a qualified person but not independent under NI 43-101.

Drilling completed since the date of the Company’s November 2006 resource estimate has further added to the tonnage potential, especially in the high-grade Southeast Zone and Abajo Zone to the north of the San Raphael fault. Although the drilling results have been published by the Company (for example, see the Company’s news releases dated April 03, 2007, May 28, 2007 and July 25, 2007), an updated mineral resource estimate has not been compiled. As such, the November 2006 mineral resource estimate represents the latest available estimate for the G-9 deposit. It is the November 2006, G-9 mineral resource estimates that are considered here.

The Company’s November 2006, G-9 mineral resource estimates are described in the following Sub-Sections 19.2.1 to 19.2.6, the text for which was compiled from the December 13, 2006 Technical Report. The reader is cautioned that the Company’s resource estimates are in the Inferred category,



Table 19.1 Mineral Resources Estimated by Zinc Grade Cut-off for the

El Largo, El Rey, Naranjo and Reforma Deposits, June and September 2005 Category Zinc Cut-off Tonnes Au (g/t) Ag (g/t) Cu (%) Pb (%) Zn (%) El Largo Indicated

3% 4% 5% 6% 7% 8%

6,507,000 4,503,000 2,860,000 1,748,000

990,000 472,000

0.89 0.85 0.79 0.74 0.73 0.71

106 115 124 133 146 157

0.36 0.35 0.34 0.34 0.33 0.33

1.11 1.24 1.39 1.53 1.72 1.89

5.15 5.89 6.69 7.47 8.23 9.08

Inferred

3% 4% 5% 6% 7% 8%

1,200,000 539,000 241,000 114,000 70,000 41,000

1.49 1.49 1.41 1.31 1.16 0.90

121 138 151 153 155 144

0.60 0.53 0.42 0.36 0.32 0.28

0.85 1.02 1.30 1.53 1.73 1.96

4.33 5.30 6.43 7.48 8.09 8.58

El Rey Indicated

3% 4% 5% 6% 7% 8%

1,350,000 820,000 323,000 106,000 33,000 14,000

2.13 2.39 2.98 3.51 5.45 6.96

126 138 162 185 230 196

0.50 0.52 0.53 0.48 0.57 0.72

1.02 1.13 1.33 1.65 2.45 3.24

4.46 5.01 5.88 6.99 8.32 9.69

Inferred 3% and 4% 15,000 2.37 91 0.54 1.47 4.63 Naranjo Indicated

3% 4% 5% 6% 7% 8%

1,954,000 1,124,000

577,000 237,000 97,000 5,000

2.45 2.74 3.11 3.63 3.44 2.38

128 153 178 194 182 132

0.67 0.67 0.66 0.53 0.54 0.37

1.22 1.46 1.82 2.25 2.33 2.85

4.49 5.24 6.00 6.79 7.21 8.07

Inferred 3% 7,000 2.71 101 0.41 0.94 3.25 Reforma Indicated

3% 4% 5% 6% 7% 8%

3,432,000 2,130,000 1,173,000

416,000 92,000 20,000

3.91 4.37 4.74 4.72 6.88 10.23

208 238 262 264 351 486

0.64 0.61 0.58 0.54 0.52 0.76

1.63 1.86 2.02 2.10 2.95 4.75

4.59 5.27 5.90 6.69 7.66 8.52

Totals Indicated

3% 4% 5% 6% 7% 8%

13,243,000 8,577,000 4,933,000 2,507,000 1,212,000

511,000

2.03 2.12 2.14 1.79 1.54 1.27

138 153 166 163 167 171

0.49 0.47 0.45 0.40 0.37 0.36

1.25 1.41 1.59 1.70 1.88 2.05

4.84 5.57 6.37 7.26 8.11 9.06

Inferred

3% 4% 5% 6% 7% 8%

1,222,000 554,000 241,000 114,000 70,000 41,000

1.51 1.51 1.41 1.31 1.16 0.90

121 137 151 153 155 144

0.60 0.53 0.42 0.36 0.32 0.28

0.86 1.03 1.30 1.53 1.73 1.96

4.33 5.28 6.43 7.48 8.09 8.58

which category may be considered geologically speculative. There is no guarantee that resources will be upgraded to reserve status. It should, however, be noted that the Company/Farallon is actively undertaking a surface infill drilling program to facilitate the definition of Measured and



Indicated resources for the G-9 deposit. Underground drilling is also planned, it will commence once the required access development is complete (Section 20). It is anticipated that the Company will publish updated resource statements for the G-9 deposit, as and when sufficient additional information becomes available to justify their estimation.

19.2.1 Geological Modelling

3-D solid models were generated for the G-9 deposit, as part of the process of defining and compiling the Company’s November 2006 resource estimates. The geological models were based on the extent of the massive sulphide and replacement zones interpreted on grid north-south cross-sections and grid east-west long sections, spaced at 50 metre intervals. The section outlines were digitized within the Vulcan mining software system; where necessary, adjustments were made based on drillhole assay grades. All sectional interpretations were snapped to drillhole intersections in 3-D space to ensure maximum accuracy when defining the developed extent of sulphide mineralization. Since the G-9 deposit was open at some of its (then defined) extremities, the sulphide body was projected by 25 metres in the open directions.

At the time the November 2006 G-9 resources were estimated, the deposit was interpreted as comprising three discrete massive sulphide bodies (the Southeast, North and Southwest Zones) and one stringer (replacement) zone. The total areal extent of these bodies was estimated to be approximately 650 metres grid east to west and 900 metres grid north to south. The maximum thickness of the various zones was estimated to be approximately 50 metres, with an average of ten to 20 metres (Figure 19.1). Table 19.2 provides a list of the 134 drillholes used for purposes of geological modelling, hence resource estimation. Subsequent drilling has identified an additional massive sulphide body (the so-called Abajo or New Zone) to the north of the San Raphael fault, which Abajo Zone is not included in either the geological models or mineral resources considered here.

Figure 19.1 - Modelled Massive Sulphide (brown) and Replacement (light blue) Bodies, November 2006 Resource Estimate



Table 19.2 G-9 Drillholes Used For Geological Modelling and Resource Estimation,

November 2006 Resource Estimate Drilling Campaign

1997 2004 2005 2006 97228 97233 97305 97306 97307 97308

4348 4368 4370 4372

5374 5415 5420 5432 5436 5441 5458 5459 5460 5461 5462 5463

5464 5465 5466 5467 5468 5469 5470 5471 5472 5473 5474 5475

5476 5477 5478 5479 5481 5483 5484 5485 5486 5487 5488 5489

5490 5491 5492 5493 5494 5495 5496 5497 5498 5499 5500 5501

5502 5503 5504 5505 5506 5507 5508 5509 5510 5511 5512 5513 5514

6515 6516 6517 6518 6519 6520 6521 6522 6523 6524 6525 6527 6530

6531 6532 6533 6534 6535 6536 6537 6538 6539 6540 6541 6542 6543

6544 6545 6546 6547 6548 6549 6550 6551 6552 6553 6554 6555 6556

6557 6559 6560 6561 6562 6563 6564 6565 6566 6567 6568 6569 6570

6571 6572 6573 6574 6575 6576 6577 6578 6579 6580 6581

While all the sulphide bodies in the G-9 deposit are generally tabular in shape, the attitudes of individual zones differ. The Southeast Zone is a flat to gently dipping zone to the northeast. The North Zone consists of several individual, stacked lenses that are inclined at gentle to moderate dips to the northwest. The Southwest Zone is a single, large tabular body with gentle to moderate dips to the southeast.

19.2.2 Assay Statistics, Grade Capping and Compositing

The November 2006 probability plots and assay statistics for silver, gold, copper, lead and zinc are presented as Figures 19.2 to 19.6, inclusive. Probability curves confirm single populations for all base metal populations in all domains. Silver and gold in the North Zone demonstrate some evidence of multiple populations and this should be addressed as future drilling campaigns increase the sample population.

Based on assay probability distributions, capping grades for gold, silver, copper, lead and zinc were determined for the individual sulphide bodies in the G-9 deposit. The (November 2006) top cuts are summarized on Table 19.3; they represent a capping threshold at approximately the 98th percentile. Original assays with grades above the capping grade were reset to the capping grade before further statistical and geostatistical analysis.

Table 19.3 Metal Capping Grades within the VMS Solids,

November 2006 Resource Estimate Deposit Zone Au (g/t) Ag (g/t) Cu (%) Pb (%) Zn (%) North Southeast Southwest Replacement

45.0 13.0 6.0 3.8

1,650 980 360 280

3.8 5.7 4.1 4.2

5.1 10.0 3.0 4.0

21 31 11 21



The original assays with variable sample length were composited by length to one metre intervals for grade estimation. Composites falling inside the four sulphide bodies were flagged accordingly.

Figure 19.2 - Probability Plots for Gold – All Domains



Figure 19.3 - Probability Plots for Silver – All Domains



Figure 19.4 - Probability Plots for Copper – All Domains



Figure 19.5 - Probability Plots for Lead – All Domains



Figure 19.6 - Probability Plots for Zinc – All Domains

19.2.3 Block Model Definition and Estimation

A block model was constructed of sufficient size to encompass the entire (November 2006) G-9 mineralized body. Variables were included to contain values for all estimated metals as well as specific gravity. The G-9 block model origin and extents are listed in Table 19.4.



Table 19.4 Block Model Definition, G-9 Deposit

Axis Origin Rotation No. of Blocks Block Size Easting Northing Elevation

4,793 11,000

782

0° 0° 0°

335 459 176

2 m 2 m 2 m

It is stated in the December 13, 2006 Technical Report that: • ‘The massive sulphide and replacement 3D solids were intersected with the block model. All

blocks whose centroids fell outside of these (deposit) envelopes were deleted.’; • ‘The writer (D. Gaunt) feels that there are insufficient samples to draw valid geostatistical

conclusions such as orientations or ranges of data continuity. As such block metal grades and specific gravities inside the VMS solids were interpolated using an inverse distance estimator (ID2). Furthermore, search ellipse dimensions were obtained not by geostatistical means, but rather by study of ellipse sizes used in estimating the Reforma, El Largo, and Naranjo deposits and tailored to the G-9 bodies’; and

• ‘Boundaries between massive sulphide and replacement domains were treated as hard

boundaries, for example, only composites flagged “replacement” or “Southeast” were used to estimate blocks in the replacement or southeast domains respectively.’.

The estimation parameters and specific gravity data for each metal in the G-9 model are summarized on Table 19.5. The search ellipse used in block interpolation was anisotropic and samples were weighted by the ellipse length. The number of samples used to estimate a metal grade or specific gravity value for a block ranged from three to eight, with a maximum of two samples from any given drillhole.

Table 19.5 ID2 Search Parameters for G-9 Grade Estimation

Estimation Parameters Deposit Zone

Variable Bearing

(Z) Plunge

(Y) Dip (X)

Major Axis

Intermediate Axis

Minor Axis

Southeast All Metals SG

90° 90°

0° 0°

10° 10°

120° 120°

65° 65°

25° 25°

Southwest All Metals SG

120° 120°

-15° -15°

10° 10°

120° 120°

65° 65°

25° 25°

North All Metals SG

90° 90°

15° 15°

0° 0°

100° 100°

65° 65°

25° 25°

Replacement All Metals SG

90° 90°

5° 5°

-19° -19°

120° 120°

65° 65°

25° 25°



19.2.4 Grade Estimation Validation

It is stated in the December 13, 2006 Technical Report that:

• ‘Local grade bias was checked by comparing block grades with nearby drillhole composite grades on cross-sections and plans.’;

• ‘The block grade distribution generally reflects the composite grade distribution reasonably well.’; and

• ‘There is some grade smoothing for the block grades, but the degree of smoothing is considered to be reasonable.’.

19.2.5 Resource Classification

It is stated in the December 13, 2006 Technical Report that:

• ‘Given the variability of the G-9 sulphide bodies in thickness and attitude and the small number of drillholes which penetrate those bodies, the writer (D. Gaunt) has classified the model blocks within the massive sulphide and replacement solids into the Inferred resource category.’;

• ‘The writer (D. Gaunt) believes that this resource classification conforms to the resource definitions established by Canadian Institute of Mining and Metallurgy (CIMM 2000) as required under NI 43-101.’; and

• ‘Mineral resources within the primary VMS solids can be upgraded to the indicated category with additional in-fill drilling.’.

In the opinion of MineFill the G-9, November 2006 mineral resource estimates are fully compliant with:


• the CIM Best Practice guidelines for Estimation of Mineral Resources and Mineral Reserves dated November 23, 2003.



19.2.6 Resource Summary

The November 2006 mineral resource estimates for the G-9 deposit are summarized on Table 19.6, for each of the identified zinc grade cut-off grades.

Table 19.6

Inferred Mineral Resources Estimated by Zinc Grade Cut-off, G-9 Deposit, November 2006

Zinc Cut-off (%) Tonnes Au (g/t) Ag (g/t) Cu (%) Pb (%) Zn (%) Southeast Zone

2.0 1,460,000 2.7 202 1.9 1.2 11.5 4.0 1,250,000 2.6 194 2.0 1.2 12.9 6.0 1,040,000 2.4 184 2.1 1.2 14.5 8.0 890,000 2.3 179 2.1 1.3 15.7

10.0 720,000 2.1 170 2.2 1.3 17.3 North Zone

2.0 2,370,000 3.7 223 1.3 1.1 7.0 4.0 1,850,000 3.8 232 1.4 1.2 8.1 6.0 1,320,000 3.7 231 1.5 1.3 9.4 8.0 790,000 3.6 231 1.6 1.2 11.0

10.0 470,000 3.4 238 1.6 1.1 12.4 Southwest Zone

2.0 1,250,000 2.0 136 0.9 0.8 3.8 4.0 470,000 2.3 153 0.8 1.1 5.3 6.0 100,000 2.4 175 0.9 1.3 7.0 8.0 10,000 2.3 183 1.0 1.4 8.7

10.0 0 2.2 178 1.1 1.2 10.2 Replacement Material

2.0 490,000 1.3 86 1.0 0.8 5.4 4.0 270,000 1.1 94 1.2 1.0 7.3 6.0 120,000 1.6 132 1.8 1.6 10.3 8.0 70,000 1.8 156 2.2 2.0 12.6

10.0 60,000 1.9 166 2.5 2.2 13.6 Totals for G-9 Deposit

2.0 5,570,000 2.8 186 1.3 1.0 7.3 4.0 3,840,000 3.0 200 1.5 1.2 9.3 6.0 2,590,000 3.0 205 1.7 1.3 11.4 8.0 1,770,000 2.9 201 1.9 1.3 13.4

10.0 1,250,000 2.6 195 2.0 1.2 15.3 The reader should be aware that Inferred mineral resources are considered too speculative geologically to have economic considerations applied to them that would enable them to be categorized as mineral reserves.



19.3 Other Factors That May Affect Mineral Resources

19.3.1 Non-Technical Issues

To the best of MineFill’s knowledge and as earlier described (Sections 6 and 7), there are currently (September 2007) no title, legal, taxation, marketing, permitting, socio-economic or other relevant issues that may materially affect the mineral resources described in this Technical Report:

• the title information presented in this Technical Report (Sub-Section 6.2) is based on a title opinion by Laura Diaz Nieves, as detailed in the above listed report by Diaz Nieves and Bouchot and dated August 15, 2006 (Sub-Section 6.2);

• following a review of current Mexican Mining Law (September 2007, Sub-Section 6.3), the Company appears to be fully compliant in terms of corporate structure (Sub-Section 6.3), concession maintenance (Sub-Section 6.3), surface rights (Sub-Section 6.3), reporting requirements (Sub-Section 6.3) and permitting requirements (Sub-Section 6.7);

• following a review of current Mexican environmental regulations (September 2007, Sub-Section 6.6), the Company appears to be fully compliant in terms of permitting requirements (Sub-Section 6.7);

• to the best of MineFill’s knowledge, no exceptional taxes currently apply (September 2007) to the Campo Morado Project (Sub-Section 6.4);

• to the best of MineFill’s knowledge there currently exists (September 2007) no reported Government restrictions or constraints on the exporting and/or sale of concentrates or metals that do not contain radioactive material (Sub-Section 6.5); and

• in the opinion of MineFill (Sub-Section 7.6) the Company has a mature and well-defined socio-economic development program through partnerships within the local communities and government agencies, that the Company is well received by both the local communities and government and that the current and future planned operations are seen in a positive light.

It is emphasized that MineFill’s findings are based on reviews of readily available data sources only. Future changes to Mexican law (mining, taxation, environmental, human resources and related issues) and/or government or local attitudes to foreign investment cannot be, and have not been, considered, predicted or evaluated within the scope of this Technical Report.

MineFill is not qualified to assess political risk, although the reader should be aware that the Campo Morado Project is the Company’s only material mineral property and that uncertainty exists, to a greater or lesser extent, as regards political and economic matters in every country in the world, going forward.



19.3.2 Technical Issues

The reader is cautioned that the Company’s G-9 resource estimates are in the Inferred category, which category may be considered geologically speculative (Section 19.2). The known mineralization has not yet been determined to be economic ore and there is no guarantee that the resources will be upgraded to reserve status. It should, however, be noted that the Company is actively undertaking a surface infill drilling program to facilitate the definition of Measured and Indicated resources for the G-9 deposit (Section 22). Underground drilling is also planned, it will commence once the required access development is complete (Section 20).

The resources are not expected to be materially affected by mining, metallurgical or infrastructure issues, which issues are typically included in the overall operating cost for an operation and thus would impact the final economic, diluted cut-off grade:

• as is normally the case in underground mining operations, the amount of the mineral resources that can be extracted will be affected by the impact of losses to pillars and other mining remnants, and the grade of the mineral resources will be affected by run-of-mine dilution. It may reasonably be anticipated that the extent of these impacts will be examined and estimated as part of Project feasibility studies, going forward. Exceptional losses to pillar and other remnants and exceptional dilution rates are not anticipated;

• it may reasonably be anticipated that the prevailing ground conditions, and their impact on stoping layout and support design, will be assessed as part of Project feasibility studies, going forward. Despite this, it is anticipated that a strong element of flexibility in stope planning and layout design will be required during the initial stoping stage, as knowledge and experience of local conditions is gained (which practice and procedures are normal and usual in underground mining operations);

• the results of the four metallurgical programs that have thus far been completed on G-9 mineralized material (Section 18) show that conventional flotation methods can be used, that robust metallurgical recovery rates for each of the target metals (gold, silver, copper, lead and zinc, which are not listed in order of economic significance) can be expected and that high-grade concentrates can be produced. As such, it may reasonably be construed that the G-9 resources will not be materially affected by metallurgical issues. The reader should, however, be aware that the results do not apply to Reforma, Naranjo and El Largo mineralized material that will probably have to be processed using hydrometallurgical methods to produce copper, zinc and precious metals on site (Sub-Section 18.1); and

• a new power line and Campo Morado Project-specific sub-station will have to be built, once the required permits are in place (Sub-Section 7.4).

The availability of additional equipment and trained personnel may affect exploitation of the mineral resources in the short-term, not least due to the current mineral industries boom (September 2007, likely extending into 2008) that has inevitably caused protracted lead times in equipment supply and a general shortage of qualified mining personnel. In the opinion of MineFill, the Company’s procurement policy and its approach to G-9 Project development have limited the potential impacts of these risks.



20 OTHER RELEVANT DATA AND INFORMATION

Figure 20.1 summarizes the G-9 Project site, related infrastructure and access roads.

Figure 20.1 – The G-9 Project Site

20.1 Project Development

Planning and design for G-9 (mine, processing plant, infrastructure and tailings dam) has been underway for some time. Knight Piésold of Vancouver, B.C., is responsible for the design and construction management of the tailings dam, water diversion dam and ditch. M3 Engineering and Construction, Inc. of Tuscon, Arizona, was in April 2007 appointed as EPCM Construction Manager (engineering, procurement and construction management) for all surface facilities, especially the mill (see the Company’s news release dated April 24, 2007).

20.1.1 Parallel-Track Strategy

The Company is pursuing a parallel-track development program for the G-9 Project, in the manner suggested by Figure 20.2:



• at the same time that exploration is focused on step-out and infill drilling to expand and/or confirm resources in the G-9 deposit, equipment purchasing, underground development, site preparation for plant and tailings facilities, power line permit applications and other activities are also on-going;

• each of the major elements of planning and design are being pursued simultaneously, rather than sequentially (a central objective of the approach is the completion of the necessary Project evaluations in time for a production decision to be made ahead of the target date for start-up ore production of July 01, 2008); and

• the Company has verbally reported to MineFill that once Measured and Indicated resources have been established, feasibility-level studies and detailed engineering will be carried out.

Figure 20.2 – The Company’s Parallel-Track Approach to the G-9 Project

The parallel-track strategy outlined was adopted by the Company following conscious balancing of the risks associated with targeted, up-front capital expenditures versus the risk that a failure to incur such costs would result in future delays and larger capital expenditures. For example, it may reasonably be anticipated that delays and additional costs would be incurred by:

• delayed orders for mining and processing equipment (which equipment can be difficult to secure in the current market [September 2007 and likely extending into 2008], with the result that the Company has in place long-lead time orders for such equipment);

• delaying the construction of key infrastructure such as heavy-duty access roads (that too would result in possibly protracted production delays that would in turn increase the risk of the Project not benefiting from the currently favourable metal prices [September 2007 and likely extending into 2008]); and



• developing minimum size (cross-section area) underground access declines and drifts to facilitate infill drilling for purposes of estimating Measured and Indicated mineral resources, as part of a final feasibility program (the cross-section profiles of such development would almost inevitably be too small for production needs, with the result that it would either have to be abandoned in favour of new, suitably dimensioned development or have to be increased in size during a second-pass development phase that would commence if/when a favourable production decision was made).

It was concluded that the potential benefits of a parallel-track strategy outweigh its associated risks. MineFill concurs with the Company’s view (Sections 21 and 22). The Company has the flexibility to use a parallel-track strategy because it is the sole owner of the G-9 Project (Sub-Section 6.2).

20.1.2 Current Status

Site earthworks contracts have been signed with Mexican contractors (ROD Construction and CIM Contractors). During MineFill’s June 2007 site visit, mill site bulk excavation and access road works were actively underway (Figure 20.3). The required works are scheduled for completion in September 2007. The Company has verbally reported to MineFill that a contract for concrete work was signed in September 2007.

Figure 20.3 – The Developing G-9 Plant Site (at the top of the ridge) and Mill Access/Ore Haul Road, June 2007

Development of an underground access decline and parallel ventilation decline (Sub-Section 20.3.1) started in August 2006. At the time of MineFill’s June 2007 site visit the declines were being developed using hand-held drilling equipment and about 230 metres of decline development had been completed. The Company verbally reported to MineFill that by the end of August 2007, the decline had been advanced by 302 metres and the ventilation ramp had been advanced by 150 metres.



A 500 kVA generator was installed at the end of July 2007 to allow the twin boom jumbo drill to be used, to thereby accelerate decline development. At the time of writing (September 2007), a second back-up compressor was being sourced and planning for the installation of a synchronized, second 500 kVA generator, along with a dual 150 horsepower ventilation fan system, was well advanced. The power source will be switched to the planned mains supply, once this is available for use. Mucking is by a six cubic yard LHD unit that was recently purchased (new) for the project (Figure 20.4).

Figure 20.4 – The G-9 Portal Site (San Agustin) and Six Cubic Yard Scoop/LHD

The Company continues to order long lead time mining and processing equipment. The Company does not expect the project to be delayed by equipment procurement or long equipment delivery times.

Various key mining equipment has been bought (September 2007), including a twin boom jumbo drill, a six cubic metre load-haul-dump (“LHD”) unit, an underground grader, a new shotcrete machine, two pneumatic explosive loaders, two Kodiak 20 ton haul trucks, a 950G Cat loader with fork adapter, a New Holland personnel tractor and several pneumatic pumps. Suitable processing equipment (including all required FAG mills, flotation cells, flotation blowers, concentrate thickeners and concentrate filters) has been sourced in Canada and Europe and has been (fixed price) purchased (see the Company’s new releases dated January 16, 2007 and March 22, 2007). All the equipment is new; delivery is expected late in 2007 or early in 2008. Most of the FAG mill components are being manufactured in Europe.

20.2 Budget Review

MineFill has reviewed the activities and expenditures of the Company since the C$55 million, G-9 budget was proposed by the Company in December 2006. Table 20.1 summarizes the planned and actual amounts, to the nearest C$100,000, following which is a summary of key points.



Table 20.1 Summary of Planned and Actual Expenditures, January 01 to September 30, 2007,

G-9 December 2006 Budget Planned Expenditures Actual Expenditures

Activity

Amount (C$)

Activity

Amount (C$)

Surface Drilling Exploration Drilling (40,000 m) Geotechnical Drilling (5,000 m)

7,000,000

Surface Drilling Jan to June – 44 holes (21,850 m) July to Sept – 30 holes (11,660 m) (includes geotechnical drilling)

7,250,000

Surface Improvements Water, Tailings Storage, Infrastructure Studies and Engineering

20,000,000

Surface Improvements Road, tailings and water supply, plant site preparation, equipment and power

15,500,000

Underground Development 1,400 m decline, 400 m crosscuts, drill stations, trial mining and bulk sampling

25,000,000

Underground Development 592.0 m of decline development, planning and equipment purchase

7,880,000

Underground Exploration Drilling 2,000,000

Underground Exploration Drilling No underground drilling has taken place

NIL

Permitting & Socio-Economics Environmental Studies, continuing socio-economic activities, acquiring a Project MIA permit

1,000,000

Permitting & Socio-Economics Socio-economic work included under ‘Site Activities’ that forms part of ‘Surface Drilling’ budget

230,000

Project Management A separate budget was not itemized

-

Project Management

1,470,000

TOTAL G-9 BUDGET 55,000,000 TOTAL G-9 EXPENDITURE 32,330,000

A portion of surface drilling budget was targeted by the Company to test structural and stratigraphic concepts, especially to the north of G-9, with the objective of finding other G-9 type mineralized occurrences. The Company has advised MineFill that a third surface drill will be employed on site, from March 2008, to advance this work.

Surface improvements have included site preparation (Sub-Section 20.1.2), development of a second access road (Sub-Section 7.2), permitting of a project-specific power supply (Sub-Sections 6.7.2 and 7.4) and purchase of plant equipment (Sub-Section 20.1.2).

Excavation of the underground access and ventilation declines advanced more slowly than was anticipated by the Company, with the result that:

• the planned underground drilling program could not be carried out;

• the expenditures for underground activities are less than originally planned/proposed (which expenditures include the cost of labour, supplies, underground equipment and related vehicles [those listed in Sub-Section 20.1.2]); and

• to compensate for this, the surface drilling program was increased - infill surface drilling into the Southeast Zone took place from June 2007 and step-out surface drilling discovered the high-grade Abajo Zone (see Section 21 for details).



A Project MIA permit, which allows for full mine and mill construction at G-9, has been received (Sub-Section 6.7.2). The Company’s socio-economic programs are on-going (Sub-Section 7.6).

20.3 Preliminary Mining Study

A preliminary mining scoping study (“the McIntosh study”, which was both not NI 43-101 compliant, and did not include a cashflow and furthermore, included hypothetical resources not yet delineated) for mining the G-9 deposit was carried out in 2006 by McIntosh Engineering Inc. of Tempe, Arizona (“McIntosh”), details of which are presented in the aforementioned McIntosh report dated August 31, 2006. McIntosh’s study was reviewed by MineFill for purposes of this Technical Report. The results of McIntosh’s study were found to be reasonable, and in some respects very detailed, given the study’s preliminary nature. Table 20.1 summarizes its key outcomes, elements of which are not fixed, insofar as mine planning and design is constantly under review to:

• optimize opportunities in line with the Company’s parallel-track approach to mine development; and

• incorporate changes to the resource base in particular, resulting from on-going infill and step-out surface drilling programs.

Table 20.2 Summary of Key Elements of the Preliminary Scoping Study

Element Amount Comments Access Development Stoping method

1,381 m long decline at -8.43% Drift & Fill, Room & Pillar

First portion at positive gradient to prevent water ingress Provisional methods

Initial production rate Target production rate Annual operation Year One production Annual production

750 tpd 1,500 tpd 350 days 262,500 tonnes 525,000 tonnes

Average rate for Production Year One - - Applies to initial production in Year One Applies to subsequent production years

Mine life Total production Average zinc grade

Nine years 4,462,500 tonnes 7.47%

Assumes postulated resources Production plan assumes high-grade material mined first -

Capital Costs US$65.8 million Pre-production capital estimate totals US$26.9 million Operating Costs US$21.61 Including all mining, power and contingencies

20.3.1 Access Development

The G-9 deposit will be accessed by a 4.5 metre by 4.5 metre decline (the so-called San Agustin Ramp, Figure 20.5) developed from a portal south of the plant site, at an elevation of 1,040 metres amsl. The dimensions of the declines were fixed in line with the Company’s parallel-track approach to Project development, following a preliminary, (mining engineering) experience- and industry precedent-based planning process that in part considered a balance



between a sensible/sustainable production rate, the average grade of the available mineral resources and the likely amount of the same available mineral resources. In the opinion of MineFill, the planned production rate is appropriate, albeit that a modest increase may be justified given the expanding size of the G-9 mineral deposit.

Figure 20.5 – Capital Development Layout, G-9 Mine

The portal entrance is inclined at plus two percent for 20 metres to prevent surface water ingress to the mine. The remainder of the decline will be at minus 8.45 percent. The stopes will be accessed by crosscuts, driven from level drifts that will be mined at elevation intervals in waste rock, parallel to the general strike of the mineralized zones. The level drifts will provide services such as ventilation, orepasses and backfill storage, as required. The level drifts will be accessed from spiral ramps, driven up or down at 12 percent from the base of the decline. In the opinion of MineFill, the overall development strategy and layout are appropriate for their intended purpose.

Development of the ventilation decline at the same time as, and parallel to, the main decline/San Agustin ramp represents a modification to the original McIntosh plan. The change has been made to maximize the opportunity for parallel development, thereby to minimize pre-production development delays, as earlier described (Sub-Section 20.1.1).

20.3.2 Waste Development Plan

Pre-production development includes the portal, decline and exploration drifts plus service facilities including a sump, pump station, shop and warehouse, powder magazine, refuge chamber and lunchroom. Waste rock from pre-production development is currently (September 2007) being hauled to surface by the six cubic yard scoop/LHD for disposal at the waste rock stockpiles adjacent to the San Agustin portal; it will eventually be hauled to surface by trucks. The waste rock material will initially be used to construct a compacted fill platform for the



permanent mine facilities adjacent to the portal. Thereafter it will be used for underground backfill.

20.3.3 Stoping and Ore Handling

Details of the stoping method have not been finalized; cut & fill and room & pillar methods have been assumed, based on earlier, preliminary mining scoping studies (not NI 43-101 compliant) carried out by McIntosh for other Campo Morado deposits. In the opinion of MineFill, the provisional nature of the stoping designs is not a limitation of current planning – even if very detailed studies were carried out there would inevitably remain an element of doubt as regards final stoping layouts and methods, due to the complex nature of the G-9 deposit and the lack of any local precedent for modern design (mining was last carried out in the local area in 1940 – Sub-Section 8.1). In many respects it may reasonably be construed as both usual and preferable, in areas where new deposits and/or new mines are being developed, to retain a strong element of flexibility in stope planning and design ahead of site-specific knowledge of rockmass conditions experienced underground.

Under the conceptual plan, ore would be produced in the stopes using drilling jumbos and LHDs. Ore from the stopes would either be transported to orepasses or directly to storage muck bays at the base of the San Agustin ramp. The LHDs would load haulage trucks with ore for transport up the access decline to the portal, and from the portal to the coarse ore stockpile at the plant.

For purposes of preliminary Project planning, it was assumed that half the stopes would be primary stopes filled with cemented backfill, with the remainder mined as secondary stopes that are backfilled with uncemented fill. Rock for the secondary fill would be taken from development waste. The requirement in excess of the amount produced by development and the amount required for primary/cemented backfill would be quarried on surface and crushed to size.

20.3.4 Preliminary Production Schedule

For preliminary planning purposes, the G-9 deposit model into 14 zones defined by eight percent zinc grade cut-off boundaries. Total estimated tonnes and grade were adjusted to reflect planned, unplanned and production losses and dilution, using the following estimation method applied to each of the 14 mineralized zones:

• grade and tonnes within the eight percent zinc grade cut-off design envelope, less design losses at six percent (above cut-off) plus design losses at four percent (below cut-off) = stope design grade and tonnage;

• stope design grade and tonnage plus unplanned production dilution at ten percent and backfill dilution at five percent = mineable resource; and

• mineable resource less production ore losses at five percent = production tonnage before mining, including dilution.



A total diluted production tonnage of 1,374,124 tonnes at an average grade of 10.7% Zn, for an eight percent zinc grade cut-off, was thereby defined. The target production rate of 1,500 tonnes per day would deplete this high-grade tonnage in 3.12 years, including the initial production build-up in Production Year One. McIntosh therefore postulated additional resources to obtain a longer mine life, hence a better picture of possible costs (1,000,000 tonnes in the Southwest Zone and 2,088,376 tonnes of other grade material above a three percent zinc grade cut-off were assumed). The postulated resources were not adjusted for planned, unplanned and production losses and dilution because they lacked sufficient certainty to merit such adjustments. The preliminary production schedule is summarized on Table 20.3. For the reasons earlier outlined, the schedule assumes extraction of high-grade mineralization from the start of Production Year One.

Table 20.3 Summary of the Preliminary Production Schedule, August 2006

Production Year Mill Feed Production 1 2 3 4 5 6 7 8 9 Tonnes 262,500 525,000 525,000 525,000 525,000 525,000 525,000 525,000 525,000 Average Grade

- Au (g/t) - Ag (g/t) - Cu (%) - Pb (%) - Zn (%)

2.74

205.92 1.37 0.86

11.59

3.18

197.57 1.34 1.26 9.46

2.84

216.25 1.46 1.43 11.43

3.23

218.03 1.21 1.50 7.97

3.31

219.81 1.13 1.48 7.51

3.26

199.68 1.19 1.02 5.37

3.26

199.22 1.19 1.01 5.32

3.26

199.22 1.19 1.01 5.32

3.26

199.22 1.19 1.01 5.32

20.3.5 Working Production Schedule

The approach adopted by McIntosh for purposes of defining a preliminary production schedule was at the time (August 2006) considered reasonable because the preliminary resource estimate (completed late in 2005) was based on the 45 available drillhole intersections, with 24 of the holes penetrating the G-9 massive sulphide and replacement mineralized bodies. The deposit remained open to the grid east and grid west and some of the strongest mineralized intersections were found at the extremities of the deposit. For example:

• at the western deposit margin a 26 metre thick massive sulphide intersection was recovered from drillhole 5486, which graded 15.1 g/t Au, 609 g/t Ag, 0.90% Cu, 1.01% Pb and 5.22% Zn; and

• the eastern extremity of the G-9 zone was at the time defined in part by a 7.9 metre intersection in drillhole 5485 that graded 4.76 g/t Au, 370 g/t Ag, 2.14% Cu, 1.42% Pb and 5.51% Zn.

The assumption of additional insitu resources proved to be correct: an additional 89 drillholes were available for the November 2006 geological model and resource estimates (a total of 134 holes were applicable to deposit modelling and resource estimation – Table 19.2). An enlarged



resource base was as a result defined, the details of which are presented in Section 19. Modifications were as a result made to the preliminary production schedule to define a so-called working production schedule (dated June 2007, for purposes of this Technical Report) that is summarized on Table 20.4 and that does not include mineralized material in the Southwest Zone.

To define the production tonnage, the newly modeled G-9 deposit was divided into two zones (North Zone and Southeast Zone), defined by multiple zinc grade cut-off boundaries:

• the North Zone was split between high-grade material (ten percent zinc grade cut-off shell) and lower grade material between five and ten percent zinc (i.e. a five percent zinc grade cut-off shell); and

• the Southeast Zone was divided into three grade divisions - the high-grade material (twelve percent zinc grade cut-off shell), material between eight and twelve percent zinc (i.e. an eight percent zinc grade cut-off shell) and material between five and eight percent zinc (i.e. a five percent zinc grade cut-off shell).

The total resource tonnes and grade were then adjusted to reflect planned, unplanned and production losses and dilution, using the following estimation method applied to the defined mineralized zones:

• grade and tonnes within each zinc grade cut-off design envelope, less design losses at six percent (above cut-off) plus design losses at five percent (below cut-off) = stope design grade and tonnage;

• stope design grade and tonnage plus unplanned production dilution at ten percent and backfill dilution at five percent = mineable resource; and

• mineable resource less production ore losses at five percent = production tonnage before mining, including dilution.

A total diluted production tonnage of 3,130,133 tonnes at an average grade of 9.69% Zn was thereby defined, for a five percent zinc grade cut-off.

Table 20.4 Summary of the Working Production Schedule, June 2007

Production Year End (same as fiscal year end) Mill Feed Production

June 30, 2009

June 30, 2010

June 30, 2011

June 30, 2012

June 30, 2013

June 30, 2014

June 30, 2015

Tonnes 350,000 525,000 525,000 525,000 525,000 525,000 155,133 Average Grade

- Au (g/t) - Ag (g/t) - Cu (%) - Pb (%) - Zn (%)

2.34 177

2.00 1.21 15.28

2.33 177

2.00 1.21 15.32

3.18 217

1.66 1.15 10.69

3.13 208 1.56 1.03 6.77

3.49 205 1.24 1.17 6.44

3.49 205 1.24 1.17 6.44

3.49 205 1.24 1.17 6.44



In the opinion of MineFill, the approach, dilution rates and modifications applied to define the working production schedule summarized on Table 20.4 may be construed as reasonable for purposes of preliminary planning. The reader is, however, cautioned that the results are based on the use of Inferred resources that are considered geologically speculative. There is no guarantee that the resources will ever be upgraded to reserve status.

20.3.6 Mill Feed Processing Model

Table 20.5 summarizes the Company’s preliminary G-9 mill feed processing model (dated June 2007, for purposes of this Technical Report) that was developed for purposes of preliminary Project planning. It is based on the working production schedule summarized on Table 20.4 and the metallurgical results summarized in Section 18. In the opinion of MineFill, the processing model is reasonable and fair. It should, however, be noted that depending on the actual mined lead grades and mineralogy during the first two years of (high-grade) production, a lead concentrate might not be produced.

Table 20.5 Summary of the Company’s Mill Feed Processing Model, June 2007

Production Year End (same as fiscal year end) Annual Production

June 30, 2009

June 30, 2010

June 30, 2011

June 30, 2012

June 30, 2013

June 30, 2014

June 30, 2015

Copper Concentrate (penalty elements: lead [5% estimated recovery to concentrate] and zinc [1% recovery]) Recoveries - Au (%) - Ag (%) - Cu (%)

3.0 10.0 75.0

3.0 10.0 75.0

3.0 10.0 65.0

3.0 10.0 65.0

3.0 10.0 60.0

3.0 8.0 60.0

3.0 8.0 60.0

Grade - Au (g/t)

- Ag (g/t) - Cu (%)

1.17 297 25.0

1.17 295 25.0

2.21 503 25.0

2.32 513 25.0

3.52 690 25.0

3.52 552 25.0

3.52 552 25.0

Lead Concentrate (penalty elements: copper [8% recovery] and zinc [1% recovery]) Recoveries - Au (%) - Ag (%) - Pb (%)

10.0 25.0 45.0

10.0 25.0 45.0

10.0 25.0 45.0

10.0 25.0 40.0

10.0 25.0 40.0

10.0 25.0 45.0

10.0 25.0 45.0

Grade - Au (g/t)

- Ag (g/t) - Pb (%)

13.75 2,615 32.0

13.69 2,601 32.0

19.66 3,355 32.0

24.31 4,036 32.0

23.86 3,508 32.0

21.21 3,118 32.0

21.21 3,118 32.0

Zinc Concentrate (penalty elements: copper [3% to 5% recovery] and lead [7% to 11% recovery]) Recoveries - Au (%) - Ag (%) - Zn (%)

10.0 13.0 85.0

10.0 13.0 85.0

10.0 13.0 80.0

10.0 13.0 75.0

8.0 10.0 75.0

8.0 10.0 75.0

8.0 10.0 75.0

Grade - Au (g/t)

- Ag (g/t) - Zn (%)

1.01 100 56.0

1.00 99

56. 0

1.97 175 53.0

3.26 282 53.0

3.06 225 53.0

3.06 225 53.0

3.06 225 53.0



20.3.7 Tailings Disposal

Under the preliminary plan, tailings will be disposed of in a purpose built, enclosed dam site in the same valley as (Barranca Naranjo), but down stream of, the G-9 mine portals, which site requires the construction of a water diversion channel (Figure 20.1). As earlier noted, Knight Piésold of Vancouver, B.C., is responsible for the engineering, design and construction management of the tailings storage facility, water diversion and water retention dam. At the time of writing (September 2007) the layouts and designs had not been finalized.

20.4 Preliminary Assessment

MineFill prepared a preliminary cashflow model for a G-9 operation, as part of an internal due diligence exercise that formed an integral part of MineFill’s investigations described in this Technical Report. The preliminary cashflow model was based on:

• information taken from the preliminary mining scoping study described in Sub-Section 20.2, as provided by the Company;

• various additional data, supplied by the Company, concerning capital costs and operating cost estimates;

• various concentrate transport, smelter and refining costs and smelter recovery assumptions applied by Minefill, based on knowledge and experience of similar mining projects elsewhere; and

• projected base case metal prices, based on an appreciation of metal price trends over the preceding five year period.

The additional data, assumptions and results are detailed and/or described in the following Sub-Sections 20.4.1 to 20.4.8. It should be noted that there have been no feasibility studies in support of mining or mine development in the G-9 deposit. The results of MineFill’s preliminary cashflow model must, therefore, be considered in the context of an independent, Preliminary Assessment. The reader is cautioned that the results of MineFill’s analysis are based on the use of the Company’s Inferred resource estimates (Section 19) that are considered geologically speculative. There is no guarantee that either the resources will ever be upgraded to reserve status or that the project returns calculated herein will ever be realized. Mineral resources that are not mineral reserves do not have demonstrated economic viability.

MineFill’s preliminary cashflow model does not include:

• the upside benefit of processing, at some future date, mineralized material from the Naranjo and Reforma deposits;



• the cost of rehabilitation (because further anticipated changes to the production schedule for the G-9 operation are expected [see below] and the G-9 plant site is likely to be used for the future processing of material from other Campo Morado deposits);

• the mineral resources that have been estimated to exist in the Southwest Zone of the G-9 deposit (Table 19.6); and

• the potential high-grade mineral resources in the Abajo Zone.

The results of MineFill’s preliminary cashflow model should, therefore, be construed as a snapshot of the potential financial returns of a G-9 operation, as of September 2007. This is emphasized because:

• a longer life-of-mine (currently assessed at 6.3 years for a production rate of 1,500 tonnes per day) may reasonably be anticipated when Southwest and Abajo Zone mineral resources, as well as additional Southeast Zone mineral resources, defined as a result of exploration drilling carried out since November 2006, are included in analysis; and

• higher average production grades, especially during the first few years of production, may reasonably be anticipated as a result of the inclusion of Abajo Zone and additional Southeast Zone mineral resources, defined as a result of exploration drilling carried out since November 2006.

It may reasonably be anticipated that the Company will develop an upgraded and updated G-9 cashflow model. The Company is targeting the first quarter of 2008 to publish new information. It may reasonably be expected that the Company’s cashflow model will include updated production and processing schedules (based on updated mineral resource estimates for the Southeast and North zones, and potentially inclusive of Abajo Zone mineralized material), as well as feasibility-level operating cost and capital cost estimates if sufficient measured and/or indicated resources are established. The results of the Company’s cashflow model may, therefore, reasonably be construed to more fully and fairly reflect the economic potential of the (currently) growing G-9 mineral deposit.

20.4.1 Key Assumptions

The key assumptions of MineFill’s preliminary cashflow model are: • a mining rate of 1,500 tonnes per day by a contractor, yielding the mill feed production

schedule summarized on Table 20.4 (life-of-mine = 6.3 years); • the mill feed processing plan summarized on Table 20.5; • the operating costs summarized on Table 20.6 (of Sub-Section 20.4.2); • the capital expenditures summarized on Table 20.7 (of Sub-Section 20.4.3, which costs were

apportioned pro-rata for six months from January 2007 to fiscal year end on 30 June 2007, and twelve months to fiscal year end on 30 June 2008);



• the annual sustaining capital amounts summarized in Sub-Section 20.4.4; • the estimated metal recoveries from concentrate summarized on Table 20.8 (of Sub-Section

20.4.5); and • the average metal prices summarized on Table 20.9 (of Sub-Section 20.4.6).

20.4.2 Operating Costs

Table 20.6 summarizes the operating costs assumed for purposes of MineFill’s preliminary cashflow model:

• McIntosh completed a mine operating cost estimate as part of their preliminary mining scoping study - an average operating cost of US$21.61 per tonne produced was defined, including direct and indirect costs of mining (direct costs including development in waste, stoping, ore haulage and backfill and a seven percent contingency, indirect costs including power and a 12 percent contingency);

• the Company estimated the year-on-year milling (including a laboratory and power) and on-site General and Administration (“G&A”, including environmental) costs; and

• MineFill compiled estimates for tailings disposal, concentrate transport (haulage to port, port fees and shipping), toll-smelting and refining charges.

Current planning assumes that the concentrates will be toll-smelted and the metals will likely be refined in Asia, for sale in Asia. The concentrates will probably be shipped from Puerto Lazaro Cardenas in Michoacán de Ocampo State of Mexico (near the border of Guerrero State, a distance of about 250 kilometres by road from Campo Morado) or Manzanillo in Colima State (to the northwest of Michoacán de Ocampo State). The option of toll-smelting and refining within Mexico is being investigated by the Company. The option that yields the better financial return will ultimately be employed.

In the opinion of MineFill, the operating cost estimates summarized on Table 20.6 are reasonable and fair, at least for purposes of preliminary cashflow modelling. More detailed analyses would be required before the details of the various cost centers could fully be justified.



Table 20.6 Summary of the Operating Cost Estimates, MineFill’s September 2007

Preliminary Cashflow Model (US$) Production Year End (same as fiscal year end)

Cost Centre June 30, 2009

June 30, 2010

June 30, 2011

June 30, 2012

June 30, 2013

June 30, 2014

June 30, 2015

On-Site Costs Cost/Tonne Milled for Mining Cost/Tonne Milled for Processing Cost/Tonne Milled of G&A Cost/Tonne Tailings (WMT)

13.42 23.47 4.73 0.25

21.61 23.14 3.87 0.25

21.61 22.58 3.87 0.25

21.61 21.29 3.87 0.25

21.61 21.11 3.87 0.25

21.61 21.13 3.87 0.25

21.61 22.26 8.19 0.25

Concentrate Delivery Costs Concentrate Haulage (/WMT) Port Charges (/WMT) Ocean Freight & Sampling (/WMT) Losses (% of NIV) Insurance (% of NIV)

29.57 11.29 40.00 0.50% 0.02%

29.57 11.29 35.00 0.50% 0.02%

29.57 11.29 30.00 0.50% 0.02%

29.57 11.29 30.00 0.50% 0.02%

29.57 11.29 30.00 0.50% 0.02%

29.57 11.29 30.00 0.50% 0.02%

29.57 11.29 30.00 0.50% 0.02%

Concentrate Smelting Costs Copper Concentrate Lead Concentrate Zinc Concentrate

80 145 50

80 145 50

80 145 100

80 145 100

80 145 140

80 145 140

80 145 140

Metal Refining Costs From Copper Concentrate

- copper (cost/lb) - silver (cost/oz) - gold (cost/oz) - penalty metals (/DMT)

From Lead Concentrate - silver (cost/oz) - gold (cost/oz) - penalty metals (/DMT)

From Zinc Concentrate - penalty metals (/DMT)

0.08 0.55 5.50

15.00

0.40 6.00

13.39

16.78

0.08 0.55 5.50

15.00

0.40 6.00

13.39

16.78

0.08 0.55 5.50

15.00

0.40 6.00

13.39

16.78

0.08 0.55 5.50

15.00

0.40 6.00

13.39

16.78

0.08 0.55 5.50

15.00

0.40 6.00

13.39

16.78

0.08 0.55 5.50

15.00

0.40 6.00

13.39

16.78

0.08 0.55 5.50

15.00

0.40 6.00

13.39

16.78

20.4.3 Pre-Production Capital Costs

Table 20.7 summarizes the pre-production capital costs assumed by MineFill for purposes of preliminary assessment. The costs were compiled by the Company, using actual costs expended to date, fixed equipment purchase prices, contractor estimates and estimated management fees.

The capital cost estimates are dated June 06, 2007. They have been reviewed by MineFill, based on scrutiny of various estimation sheets compiled by the Company and cross-references to the mining capital cost estimates compiled by McIntosh as part of their August 2006 preliminary scoping study. In the opinion of MineFill, the capital cost estimates are reasonable and fair, at least for purposes of preliminary cashflow modelling. Significant changes to key capital items are considered unlikely.

20.4.4 Sustaining Capital Costs

The estimated sustaining capital requirements (exclusive of rehabilitation, as earlier outlined) total US$35.73 million, including reasonable and fair contingencies (US$8.16 million in



Production Year 1, followed by amounts totalling US$8.62 million, US$2.71 million, US$4.46 million, US$5.05 million and US$3.13 million in subsequent production years).

The basis of the sustaining capital amounts is in considerations of: equipment rebuilding and replacement costs for the required mobile and fixed annual fleets; and mine development costs, going forward. Mine development costs are based on McIntosh’s estimated unit cost per metre of development of US$1,348.88, assuming contractor crews and fair to good ground conditions. It should be noted that mine development costs going forward might change as details of the G-9 deposit’s structure and extent become better known as a result of on-going exploration and development advance.

Table 20.7 Summary of the Company’s Capital Cost Estimates, June 2007 (US$)

Estimated Amounts (US$’000) Fiscal Year End

Capital Cost Centre Total

Jan. ’07 to Jul. ‘08 June 30, 2007 June 30, 2008 Project Management 1,315 438 877 FAN/FMM Costs Land Acquisition / Relocation Community Satellite Infrastructure FMM Support (Camp, Fuel, Parts) Road Construction Arcelia Access Road Construction Sub-total

168 592 2,430 720 1,500 5,410

1,803

3,607 Environmental Permitting 395 132 263 Underground Mine Labor Equipment Purchased Supplies Permanently Installed Supplies Consumed Fuel, Oil, Lubricants Camp Support EPCM Owner's Costs Sub-total

2,628 15,548 7,871 2,584 1,883 1,582 2,800 726 35,622

11,874

23,748 Process Plant & Power Supply Mill Power Ancillaries Indirects EPCM Contingencies Testing Fees Sub-total

39,220 5,462 7,033 1,021 8,584 7,058 169 68,546

22,849

45,698 Tailings & Water Facilitites Dam, Pumps, Pipelines, etc Water Dam and Diversion Ditch Plant Site Bulk Earthworks EPCM Contingencies Sub-total

3,955

2,945 3,108 1,485 1,498 12,991

4,330

8,661 TOTAL 124,279 41,426 82,853



20.4.5 Smelter Recoveries

Table 20.8 summarizes the metal recoveries from concentrate that have been assumed by MineFill for purposes of preliminary cashflow modelling, which recoveries may reasonably be construed as fair for the types and grades of concentrates that are expected to be produced.

Table 20.8

Assumed Average Smelter Recoveries, G-9 Concentrates, September 2007 Average Smelter Recoveries

Product Gold Silver Copper Lead Zinc Copper Concentrate Lead Concentrate Zinc Concentrate

95% 75% 75%

93% 70% 70%

99% - -

- 95%

-

- -

85%

20.4.6 Metal Prices

Table 20.9 summarizes the metal prices assessed by MineFill in September 2007, for use in the preliminary cashflow model. They are based on an appreciation of metal price trends over the preceding five year period. They are purposely intended to be, on balance, conservative and to reflect base case prices that, in the case of zinc, fall within a justifiable value range when a plus/minus 20 percent sensitive analysis is applied (Sub-Section 20.4.8). The metal prices were reviewed in conjunction with the Company, prior to their inclusion in the preliminary cashflow model.

Table 20.9

Summary of Estimated Average Metal Prices, September 2007 Production Year End (same as fiscal year end)

Metal June 30, 2009

June 30, 2010

June 30, 2011

June 30, 2012

June 30, 2013

June 30, 2014

June 30, 2015

Gold (US$/oz) Silver (US$/oz) Copper (US$/lb) Lead (US$/lb) Zinc (US$/lb)

550 8.00 2.59 0.49 1.30

500 7.00 2.33 0.44 1.10

500 6.00 2.11 0.40 0.88

500 6.00 1.40 0.40 0.75

500 6.00 1.40 0.40 0.75

500 6.00 1.40 0.40 0.75

500 6.00 1.40 0.40 0.75

20.4.7 Financial Highlights

The Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) highlights of MineFill’s preliminary G-9 cashflow model are summarized on Table 20.10. The summary page of MineFill’s cashflow model is presented as Table 20.11. The metals produced and Net Smelter Returns (“NSR”) for each concentrate produced are calculated on separate sheets that are presented as Tables 20.12 to 20.15, inclusive.



Table 20.10 EBITDA Financial Highlights, G-9 Operation

Tonnes Milled 3,130,133 tonnes Average Grade 3.05 g/t Au

200 g/t Ag 1.58% Cu 1.15% Pb 9.69% Zn

Total Recovered Metal 52,800 oz Au 6,970,000 oz Ag 70,010,000 lb Cu 32,884,000 lb Pb 456,530,000 lb Zn

Average Annual Metal Recovery (Life-of-Mine = 6.3 years)

8,400 oz Au 1,106,000 oz Ag 11,113,000 lb Cu 5,213,000 lb Pb 72,450,000 lb Zn

Average On-site Operating Cost $48.22 per tonne milled Start-up Capital Cost US$124.3 million Net Cashflow US$223.6 million NPV (8%) US$141.8 million NPV (12%) US$113.1 million IRR 54% Payback Period Slightly more than one year

Table 20.11 Summary Page, MineFill’s G-9 Preliminary Cashflow Model

FARALLON RESOURCES LTD. - G-9 PRELIMINARY CASHFLOW MODELFiscal Year Ending

1 2 3 4 5 6 730-Jun-07 30-Jun-08 30-Jun-09 30-Jun-10 30-Jun-11 30-Jun-12 30-Jun-13 30-Jun-14 30-Jun-15 Totals

Mill Feed Tonnes Milled 350,000 525,000 525,000 525,000 525,000 525,000 155,133 3,130,133

NSR Revenues Copper Concentrate US$ 25,608,356 33,954,018 22,753,582 13,523,446 10,653,610 10,304,279 3,044,826Lead Concentrate US$ 4,127,937 5,246,650 5,715,214 5,499,859 5,698,510 5,717,277 1,689,406Zinc Concentrate US$ 99,816,382 124,844,820 60,128,062 31,034,255 26,931,843 26,931,843 7,958,129

Net Revenue US$ 129,552,675 164,045,488 88,596,858 50,057,560 43,283,962 42,953,399 12,692,361 531,182,303

Operating Costs Mining US$/t milled 13.42 21.61 21.61 21.61 21.61 21.61 21.61Processing and Power US$/t milled 23.47 23.14 22.58 21.29 21.11 21.13 22.26

G&A US$/t milled 4.73 3.87 3.87 3.87 3.87 3.87 8.19Tailings Disposal US$/t milled 0.19 0.19 0.21 0.23 0.23 0.23 0.23

Total Onsite Costs US$/t milled 41.81 48.81 48.27 47.00 46.82 46.84 52.29Total OPEX US$ 14,632,725 25,624,002 25,342,679 24,675,602 24,583,080 24,593,319 8,112,590 147,563,996

Operating Profit (EBITDA) Operating Profit US$ 114,919,950 138,421,487 63,254,180 25,381,957 18,700,882 18,360,080 4,579,771

Capital Costs Project Management US$ 438,371 876,743FAN/FMM Costs US$ 1,803,485 3,606,970

Environmental Permitting US$ 131,667 263,333Mining US$ 11,873,824 23,747,648

Processing and Power Supply US$ 22,848,824 45,697,648Tailings and Water Processing US$ 4,330,300 8,660,600

Sustaining US$ 8,158,000 8,624,000 2,708,000 4,462,000 5,052,000 3,130,000 3,598,000Total CAPEX (excl. exploration) US$ 41,426,471 82,852,942 8,158,000 8,624,000 2,708,000 4,462,000 5,052,000 3,130,000 3,598,000 160,011,414

Project Cashflow Free Cashflow US$ -41,426,471 -82,852,942 106,761,950 129,797,487 60,546,180 20,919,957 13,648,882 15,230,080 981,771 223,606,893Cumulative Free Cashflow US$ -41,426,471 -124,279,414 -17,517,464 112,280,023 172,826,202 193,746,160 207,395,042 222,625,122 223,606,893

IRR 54%NPV @ 0% Discount $223,606,893

@ 5% Discount $168,097,349

@ 8% Discount $141,838,512 @ 10% Discount $126,659,859 @ 12% Discount $113,075,418

Operating Cost Sensitivity 100%Capital Cost Sensitivity 100%

Zn Metal Price Sensitivity 100%



Table 20.12 Metals Produced, MineFill’s G-9 Preliminary Cashflow Model

Table 20.13 Net Smelter Return, Copper Concentrate, MineFill’s G-9 Preliminary Cashflow Model

METAL PRODUCED Fiscal Year Ending1 2 3 4 5 6 7 Totals &

30-Jun-07 30-Jun-08 30-Jun-09 30-Jun-10 30-Jun-11 30-Jun-12 30-Jun-13 30-Jun-14 30-Jun-15 Averages

Mill Feed Tonnes 350,000 525,000 525,000 525,000 525,000 525,000 155,133 3,130,133Au (g/t) 2.34 2.33 3.18 3.13 3.49 3.49 3.49 3.05Ag (g/t) 178 177 217 207.86 205.23 205.23 205.23 200

Ore Grade % Cu 2.00% 2.00% 1.66% 1.56% 1.24% 1.24% 1.24% 1.58%% Pb 1.21% 1.21% 1.15% 1.03% 1.17% 1.17% 1.17% 1.15%% Zn 15.28% 15.32% 10.69% 6.78% 6.44% 6.44% 6.44% 9.69%

Copper Concentrate Copper Recovery % 75.0% 75.0% 65.0% 65.0% 60.0% 60.0% 60.0% 65.87%Silver Recovery to Cu Conc % 10.0% 10.0% 10.0% 10.0% 10.0% 8.0% 8.0% 9.57%Gold Recovery to Cu Conc % 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.00%

Copper Grade % 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.00%Silver Grade g/t 296.7 295.0 502.8 512.5 689.6 551.7 551.7Gold Grade g/t 1.17 1.17 2.21 2.32 3.52 3.52 3.52

Copper Concentrate DMT 21,000 31,500 22,659 21,294 15,624 15,624 4,617 132,318Gold Contained oz 790 1,180 1,610 1,585 1,767 1,767 522

Silver Contained oz 200,299 298,761 366,277 350,850 346,411 277,129 81,889Copper Contained lb 11,574,150 17,361,225 12,488,508 11,736,188 8,611,168 8,611,168 2,544,526

Lead Concentrate Lead Recovery % 45.0% 45.0% 45.0% 40.0% 40.0% 45.0% 45.0% 43.32%Silver Recovery to Pb Conce % 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.00%

Gold Recovery to Pb Conc % 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.00%Lead Grade % 32.0% 32.0% 32.0% 32.0% 32.0% 32.0% 32.0% 32.00%Silver Grade g/t 2615.2 2600.6 3354.6 4036.1 3508.2 3118.4 3118.4Gold Grade g/t 13.75 13.69 19.66 24.31 23.86 21.21 21.21

Lead Concentrate DMT 5,955 8,933 8,490 6,759 7,678 8,638 2,552 49,007Gold Contained oz 2,633 3,933 5,368 5,283 5,891 5,891 1,741

Silver Contained oz 500,748 746,902 915,693 877,125 866,027 866,027 255,903Lead Contained lb 4,201,416 6,302,125 5,989,623 4,768,550 5,416,702 6,093,790 1,800,663

Zinc Concentrate Zinc Recovery % 85.0% 85.0% 80.0% 75.0% 75.0% 75.0% 75.0% 78.63%Silver Recovery to Zn Conc % 13.0% 13.0% 13.0% 13.0% 10.0% 10.0% 10.0% 11.84%Gold Recovery to Zn Conc % 10.0% 10.0% 10.0% 10.0% 8.0% 8.0% 8.0% 9.23%

Zinc Grade % 56.0% 56.0% 53.0% 53.0% 53.0% 53.0% 53.0% 53.84%Silver Grade g/t 99.8 99.0 174.8 281.6 225.2 225.2 225.2Gold Grade g/t 1.01 1.00 1.97 3.26 3.06 3.06 3.06

Zinc Concentrate DMT 81,175 122,081 84,713 50,370 47,844 47,844 14,138 448,166Gold Contained oz 2,633 3,933 5,368 5,283 4,713 4,713 1,393

Silver Contained oz 260,389 388,389 476,161 456,105 346,411 346,411 102,361Zinc Contained lb 100,216,707 150,718,581 98,982,131 58,854,553 55,903,145 55,903,145 16,518,900

NSR Calculations - Copper Concentrate Fiscal Year Ending1 2 3 4 5 6 7

30-Jun-07 30-Jun-08 30-Jun-09 30-Jun-10 30-Jun-11 30-Jun-12 30-Jun-13 30-Jun-14 30-Jun-15 Totals

Copper Concentrate Dry Mass DMT 0 0 21,000 31,500 22,659 21,294 15,624 15,624 4,617 132,318Wet Mass WMT 0 0 22,703 34,054 24,496 23,021 16,891 16,891 4,991 143,046

Payable Gold Gold Content oz 0 0 790 1,180 1,610 1,585 1,767 1,767 522Smelter Deduction % 0 0 39 59 81 79 88 88 26Payable Gold oz 0 0 750 1,121 1,530 1,506 1,679 1,679 496 8,761

Gold Revenue from Concentrate Gross Gold Revenue US$ 0 0 412,746 560,430 764,878 752,852 839,442 839,442 248,048Refining Charge US$ 0 0 4,127 6,165 8,414 8,281 9,234 9,234 2,729Net Revenue - Gold US$ 0 0 408,618 554,265 756,465 744,571 830,208 830,208 245,319 4,369,654

Payable Silver Silver Content oz 0 0 200,299 298,761 366,277 350,850 346,411 277,129 81,889Smelter Deduction oz 0 0 14,021 20,913 25,639 24,559 24,249 19,399 5,732Payable Silver oz 0 0 186,278 277,848 340,638 326,290 322,162 257,730 76,157 1,787,102

Silver Revenue from Concentrate Gross Revenue US$ 0 0 1,490,226 1,944,933 2,043,828 1,957,742 1,932,971 1,546,377 456,941Total Refining Charge US$ 0 0 102,453 152,816 187,351 179,460 177,189 141,751 41,886Net Revenue - Gold 0 0 1,387,773 1,792,117 1,856,477 1,778,282 1,755,782 1,404,626 415,055 10,390,112

Payable Copper Copper Content lbs 0 0 11,574,150 17,361,225 12,488,508 11,736,188 8,611,168 8,611,168 2,544,526Smelter Deduction lbs 0 0 462,966 694,449 499,540 469,448 344,447 344,447 101,781Payable Copper lbs 0 0 11,111,184 16,666,776 11,988,968 11,266,741 8,266,721 8,266,721 2,442,745 70,009,855

Copper Revenue from Concentrate Gross Revenue US$ 0 0 28,811,272 38,912,130 25,263,152 15,773,437 11,573,409 11,573,409 3,419,843Total Treatment Charge US$ 0 0 1,816,216 2,724,324 1,959,697 1,841,643 1,351,265 1,351,265 399,287Total Refining Charge US$ 0 0 888,895 1,333,342 959,117 901,339 661,338 661,338 195,420Net Revenue - Copper US$ 0 0 26,106,161 34,854,464 22,344,338 13,030,454 9,560,807 9,560,807 2,825,136 118,282,167

Penalty Elements Total Penalties US$ 0 0 315,000 472,500 339,885 319,410 234,360 234,360 69,251 1,984,766

Concentrate Transport Costs Haulage US$ 0 0 671,319 1,006,978 724,353 680,717 499,461 499,461 147,587Port Charges US$ 0 0 256,314 384,470 276,562 259,902 190,697 190,697 56,349Ocean Freight and Sampling US$ 0 0 908,108 1,191,892 734,886 690,616 506,724 506,724 149,733Losses US$ 0 0 137,938 183,642 123,087 76,169 59,562 57,806 17,081Insurance US$ 0 0 5,518 7,346 4,923 3,047 2,382 2,312 683Total Transportation Costs US$ 0 0 1,979,196 2,774,328 1,863,812 1,710,452 1,258,828 1,257,002 371,433 11,215,050

Summary Gross Revenue from ConcentraUS$ 0 0 30,714,244 41,417,493 28,071,858 18,484,031 14,345,822 13,959,228 4,124,832Charges & Penalties US$ 0 0 3,126,691 4,689,147 3,454,464 3,250,134 2,433,385 2,397,948 708,573Concentrate NIV US$ 0 0 27,587,552 36,728,346 24,617,394 15,233,897 11,912,437 11,561,281 3,416,259Transportation Costs US$ 0 0 1,979,196 2,774,328 1,863,812 1,710,452 1,258,828 1,257,002 371,433

NSR - Copper Concentrate US$ 0 0 25,608,356 33,954,018 22,753,582 13,523,446 10,653,610 10,304,279 3,044,826 119,842,116



Table 20.14 Net Smelter Return, Lead Concentrate, MineFill’s G-9 Preliminary Cashflow Model

Table 20.15

Net Smelter Return, Zinc Concentrate, MineFill’s G-9 Preliminary Cashflow Model

NSR Calculations - Lead Concentrate Fiscal Year Ending1 2 3 4 5 6 7


Lead Concentrate Dry Mass DMT 0 0 5,955 8,933 8,490 6,759 7,678 8,638 2,552 49,007Wet Mass WMT 0 0 6,473 9,710 9,229 7,347 8,346 9,389 2,774 53,268

Payable Gold Gold Content oz 0 0 2,633 3,933 5,368 5,283 5,891 5,891 1,741Smelter Deduction % 0 0 658 983 1,342 1,321 1,473 1,473 435Payable Gold oz 0 0 1,975 2,950 4,026 3,962 4,418 4,418 1,306 23,054

Gold Revenue from Concentrate Gross Gold Revenue US$ 0 0 1,086,173 1,474,815 2,012,838 1,981,189 2,209,058 2,209,058 652,758Refining Charge US$ 0 0 11,849 17,698 24,154 23,774 26,509 26,509 7,833Net Revenue - Gold US$ 0 0 1,074,324 1,457,117 1,988,684 1,957,415 2,182,549 2,182,549 644,925 11,487,562


Silver Revenue from Concentrate Gross Revenue US$ 0 0 2,804,188 3,659,820 3,845,912 3,683,923 3,637,312 3,637,312 1,074,794Total Refining Charge US$ 0 0 140,209 209,133 256,394 245,595 242,487 242,487 71,653Net Revenue - Silver 0 0 2,663,979 3,450,687 3,589,518 3,438,328 3,394,824 3,394,824 1,003,141 20,935,303

Payable Lead Lead Content lbs 0 0 4,201,416 6,302,125 5,989,623 4,768,550 5,416,702 6,093,790 1,800,663Smelter Deduction lbs 0 0 210,071 315,106 299,481 238,427 270,835 304,689 90,033Payable Lead lbs 0 0 3,991,346 5,987,018 5,690,141 4,530,122 5,145,867 5,789,100 1,710,630 32,844,225

Lead Revenue from Concentrate Gross Revenue US$ 0 0 1,955,759 2,634,288 2,276,057 1,812,049 2,058,347 2,315,640 684,252Total Treatment Charge US$ 0 0 938,634 1,407,950 1,338,135 1,065,336 1,210,139 1,361,407 402,284Total Refining Charge US$ 0 0 0 0 0 0 0 0 0Net Revenue - Lead US$ 0 0 1,017,126 1,226,338 937,922 746,713 848,208 954,234 281,968 6,012,507

Penalty Elements Total Penalties US$ 0 0 79,744 119,616 113,684 90,508 102,810 115,661 34,177 656,200

Concentrate Transport Costs Haulage US$ 0 0 191,417 287,125 272,887 217,255 246,785 277,633 82,038Port Charges US$ 0 0 73,084 109,626 104,190 82,949 94,224 106,002 31,323Ocean Freight and Sampling US$ 0 0 258,933 339,850 276,855 220,414 250,374 281,670 83,231Losses US$ 0 0 23,378 30,073 32,012 30,260 31,614 32,080 9,479Insurance US$ 0 0 935 1,203 1,280 1,210 1,265 1,283 379Total Transportation Costs US$ 0 0 547,747 767,876 687,225 552,089 624,261 698,668 206,450 4,084,318

Summary Gross Revenue from Concentrate US$ 0 0 5,846,120 7,768,923 8,134,807 7,477,162 7,904,716 8,162,010 2,411,804Charges & Penalties US$ 0 0 1,170,436 1,754,396 1,732,367 1,425,213 1,581,945 1,746,064 515,947Concentrate NIV US$ 0 0 4,675,684 6,014,527 6,402,440 6,051,948 6,322,771 6,415,945 1,895,857Transportation Costs US$ 0 0 547,747 767,876 687,225 552,089 624,261 698,668 206,450

NSR - Lead Concentrate US$ 0 0 4,127,937 5,246,650 5,715,214 5,499,859 5,698,510 5,717,277 1,689,406 33,694,854

NSR Calculations - Zinc Concentrate Fiscal Year Ending1 2 3 4 5 6 7


Zinc Concentrate Dry Mass DMT 0 0 81,175 122,081 84,713 50,370 47,844 47,844 14,138 448,166Wet Mass WMT 0 0 88,234 132,697 92,080 54,750 52,005 52,005 15,367 487,137

Payable Gold Gold Content oz 0 0 2,633 3,933 5,368 5,283 4,713 4,713 1,393Smelter Deduction % 0 0 658 983 1,342 1,321 1,178 1,178 348Payable Gold oz 0 0 1,975 2,950 4,026 3,962 3,534 3,534 1,044 21,026

Gold Revenue from Concentrate Gross Gold Revenue US$ 0 0 1,086,173 1,474,815 2,012,838 1,981,189 1,767,246 1,767,246 522,206Refining Charge US$ 0 0 0 0 0 0 0 0 0Net Revenue - Gold US$ 0 0 1,086,173 1,474,815 2,012,838 1,981,189 1,767,246 1,767,246 522,206 10,611,713


Silver Revenue from Concentrate Gross Revenue US$ 0 0 1,458,178 1,903,106 1,999,874 1,915,640 1,454,925 1,454,925 429,918Total Refining Charge US$ 0 0 0 0 0 0 0 0 0Net Revenue - Silver 0 0 1,458,178 1,903,106 1,999,874 1,915,640 1,454,925 1,454,925 429,918 10,616,566

Payable Zinc Zinc Content lbs 0 0 100,216,707 150,718,581 98,982,131 58,854,553 55,903,145 55,903,145 16,518,900Smelter Deduction lbs 0 0 15,032,506 22,607,787 14,847,320 8,828,183 8,385,472 8,385,472 2,477,835Payable Zinc lbs 0 0 85,184,201 128,110,794 84,134,811 50,026,370 47,517,673 47,517,673 14,041,065 456,532,587

Zinc Revenue from Concentrate Gross Revenue US$ 0 0 110,739,461 140,921,874 73,617,960 37,519,777 35,638,255 35,638,255 10,530,799Total Treatment Charge US$ 0 0 4,411,685 6,634,851 9,207,957 5,475,031 7,280,660 7,280,660 2,151,373Total Refining Charge US$ 0 0 0 0 0 0 0 0 0Net Revenue - Zinc US$ 0 0 106,327,776 134,287,023 64,410,002 32,044,747 28,357,594 28,357,594 8,379,426 402,164,163

Penalty Elements Total Penalties US$ 0 0 1,362,117 2,048,523 1,421,488 845,213 802,828 802,828 237,229 7,520,226

Concentrate Transport Costs Haulage US$ 0 0 2,609,070 3,923,851 2,722,793 1,618,967 1,537,779 1,537,779 454,401Port Charges US$ 0 0 996,158 1,498,149 1,039,578 618,131 587,133 587,133 173,493Ocean Freight and Sampling US$ 0 0 3,529,348 4,644,395 2,762,387 1,642,509 1,560,142 1,560,142 461,008Losses US$ 0 0 537,550 678,082 335,006 175,482 153,885 153,885 45,472Insurance US$ 0 0 21,502 27,123 13,400 7,019 6,155 6,155 1,819Total Transportation Costs US$ 0 0 7,693,629 10,771,601 6,873,165 4,062,108 3,845,094 3,845,094 1,136,192 38,226,883

Summary Gross Revenue from Concentrate US$ 0 0 113,283,812 144,299,795 77,630,672 41,416,607 38,860,425 38,860,425 11,482,923Charges & Penalties US$ 0 0 5,773,801 8,683,374 10,629,445 6,320,244 8,083,488 8,083,488 2,388,602Concentrate NIV US$ 0 0 107,510,010 135,616,421 67,001,227 35,096,363 30,776,937 30,776,937 9,094,321Transportation Costs US$ 0 0 7,693,629 10,771,601 6,873,165 4,062,108 3,845,094 3,845,094 1,136,192

NSR - Zinc Concentrate US$ 0 0 99,816,382 124,844,820 60,128,062 31,034,255 26,931,843 26,931,843 7,958,129 377,645,333



20.4.8 Sensitivity Analyses

The robustness of the preliminary financial results was explored using sensitivity analyses to examine the impact of varying the capital costs, operating costs and zinc metal prices. The results are presented on Tables 20.16 to 20.18, inclusive, and as line plots presented as Figures 20.6 and 20.7.

Table 20.16 Sensitivity Analysis (NPV[0], in US$ millions) of Capital and Operating Costs

Variable Changed -20% -10% 0% 10% 20% Operating Cost 253.1 238.4 223.6 208.9 194.1

Capital Cost 255.6 239.6 223.6 207.6 191.6

Table 20.17 Sensitivity Analysis (IRR) of Capital and Operating Costs

Variable Changed -20% -10% 0% 10% 20% Operating Cost 58% 56% 54% 52% 51%

Capital Cost 72% 62% 54% 47% 41%

Table 20.18 Sensitivity Analysis of Zinc Metal Prices

Variable -20% -10% 0% 10% 20% NPV(0), in US$ millions 135.1 179.4 223.6 267.8 312.1

IRR 37% 46% 54% 62% 69%

Figure 20.6 – Sensitivity of NPV(0) and IRR to Capital and Operating Costs

190

200

210

220

230

240

250

260

-20% -10% 0% 10% 20%

Change from Base Level

NPV

(US

$ m

illio

ns)

40%

45%

50%

55%

60%

65%

70%

75%

IRR

NPV (OPEX) NPV (CAPEX) IRR (OPEX) IRR (CAPEX)



Figure 20.7 – Sensitivity of NPV(0) and IRR to the Zinc Price

21 INTERPRETATION AND CONCLUSIONS

Exploration drilling has been concentrated on the G-9 deposit since June 2005, due to its comparatively high grades and the amenability of the mineralized material to conventional flotation methods. These attributes identify the G-9 deposit as being distinctly different from the other four primary VMS deposits found in the Campo Morado Project area (El Largo, El Rey, Naranjo and Reforma). In combination, the G-9 attributes are expected to yield better short-term financial returns than the alternative of processing Naranjo and Reforma mineralized material using hydrometallurgical methods to produce gold, silver, copper and zinc on site.

To date (September 2007), an Inferred G-9 mineral resource only has been estimated from the results of exploration drilling. Despite this, the Company is pursuing a parallel-track program for G-9 project development, an element of which is underground drilling to facilitate the estimation of a mineral reserve base. The Company’s overall objective of the parallel-track program is to realize the target production start-up date of July 01, 2008.

The parallel-track approach may be justified from consideration of the robust metallurgical results for G-9 mineralization (over four programs), the VMS nature of the deposit (VMS deposits tend to be consolidated into discrete, sulphide-rich lenses in which regular metal zoning rarely occurs), the lateral persistence of the mineralized grades intersected thus far and the history of G-9 exploration drilling (that has consistently resulted in additional resource tonnes at ever higher average resource grades).

Exploration drilling during 2007 continues to enlarge the defined areas of G-9 mineralization, as well as to increase the average overall grade of intersected G-9 mineralization. This may stated because since the November 2006 resource estimate was compiled, and up to the data cut-off date for this Technical Report (September 23, 2007), an additional 59 surface exploration holes (27,097.51 metres) had been drilled into the G-9 deposit, 33 of which holes intersected significant sulphide mineralization in the Southeast and Abajo Zones:

100

150

200

250

300

350

-20% -10% 0% 10% 20%

Change from Base Prices

NPV

(US

$ m

illio

ns)

30%

40%

50%

60%

70%

80%

IRR

NPV IRR



• 26 of the 33 holes intersected the high-grade Southeast Zone, all but one of which holes (6591) was drilled in 2007 (the holes highlighted in BLUE on Table 21.1 were drilled after completion of the November 2006 resource estimate, which table is split into Tables 21.1a and 21.1b due to its overall length); and

• seven of the 33 holes intersected new high-grade mineralization in the so-called Abajo Zone (Table 21.2 and Figure 21.1, only one of which holes [5940] had been drilled prior to 2007).

Of the remaining 26 additional exploration holes drilled into the G-9 deposit between November 2006 and September 23, 2007, three intersected other portions of the G-9 deposit and 23 did not intersect significant Southeast and Abajo Zone sulphide mineralization (they instead help delimit the margins of the Southeast and Abajo Zones).

Many of the holes drilled into the high-grade Southeast and Abajo Zones since November 2006 define extensions to the previously defined mineralized areas. It is anticipated that infill and step-out surface drilling during the last quarter of 2007 will concentrate on the North Zone and thereafter (during the first quarter of 2008) on the Abajo Zone. It is further anticipated that the Company will publish updated mineral resource estimates for the G-9 deposit early in 2008.

Table 21.1a Summary of Significant Assay Results, Drillhole Intersections,

High-Grade Southeast Zone, G-9 Deposit Drillhole From

(m) To (m)

Interval (m)

True Width (m)

Au (g/t)

Ag (g/t)

Cu (%)

Pb (%)

Zn (%)

97305 97307 4348 and and

5420 5464

including including

5484 5495 6576

including 6578 6580 and

6591 7592 7697 7598 7601

including including

and including

7602 7605 7609

298.80 327.40 260.75 275.75 285.50 377.43 348.20 348.20 360.20 399.94 269.25 402.30 402.30 400.50 382.30 389.18 346.60 383.06 266.05 285.85 281.20 282.00 283.00 290.10 291.00 329.90 278.50 335.00

303.30 335.15 262.12 277.15 287.35 392.29 372.00 367.20 367.20 406.94 271.30 416.30 406.30 406.50 387.05 391.22 346.78 385.06 272.05 294.50 286.90 286.90 286.00 305.00 299.00 331.60 283.50 336.30

4.50 7.75 1.37 1.40 1.85 14.86 23.80 19.00 7.00 7.00 2.05 14.00 4.00 6.00 4.75 2.04 0.18 2.00 6.00 8.65 5.70 4.90 3.00 14.90 8.00 1.70 5.00 1.30

4.50 7.00 1.37 1.40 1.80 13.96 23.50 18.80 6.90 6.50 1.80 13.80 4.00 6.00 4.11 1.77 0.18 1.34 5.91 7.71 5.70 4.90 3.00 14.90 8.00 1.69 4.93 1.22

3.30 0.56 2.93 1.67 0.28 1.06 3.54 4.26 4.58 3.79 0.42 0.43 0.72 1.38 3.42 0.93 0.89 1.10 0.77 2.25 4.35 4.18 3.28 3.27 2.78 5.41 0.72 2.96

210 65

489 34 21 67

195 232 308 255 23 33 70

103 264 53 91

166 39

122 422 443 470 223 255 534 273 139

1.22 1.53 2.61 0.69 0.73 1.76 0.89 0.91 0.98 0.54 0.56 2.13 2.43 3.35 1.65 1.82 3.09 3.29 0.83 1.52 3.03 3.19 3.96 1.62 2.07 3.59 1.70 1.57

0.79 0.52 1.60 0.06 0.14 0.69 0.72 0.86 1.03 2.37 0.05 0.11 0.27 1.10 2.21 0.30 0.57 0.41 0.38 0.84 2.01 2.17 1.43 1.90 2.79 1.06 2.19 1.53

4.73 5.20 2.02 8.13 3.69 14.16 12.16 13.89 22.19 2.90 6.84 14.79 24.33 17.01 15.59 10.94 29.60 23.95 7.94 24.27 20.71 23.31 30.06 4.52 5.96 12.38 9.78 6.90



Table 21.1b Summary of Significant Assay Results, Drillhole Intersections,

High-Grade Southeast Zone, G-9 Deposit Drillhole From

(m) To (m)

Interval (m)

True Width (m)

Au (g/t)

Ag (g/t)

Cu (%)

Pb (%)

Zn (%)

7611 7613 and

7617 7618 7624 7626 7628

including including including

7631 7632 and and


including and

7636 7639

including 7642

including 7643 7644 7647 and

including 7648

625.85 376.95 384.80 326.00 359.50 319.40 328.80 331.40 332.40 341.40 345.40 430.90 395.30 400.30 425.90 382.70 444.09 451.00 466.05 473.35 477.00 481.00 524.00 371.80 325.50 325.50 327.40 327.40 260.93 267.50 284.60 290.60 293.60

290.45

626.75 377.75 385.05 328.00 363.40 323.80 333.25 350.70 337.70 345.40 349.40 434.95 397.30 403.30 429.90 393.60 451.00 458.90 468.65 477.00 488.00 485.00 526.00 389.80 335.70 333.45 333.30 332.40 262.20 272.50 287.60 306.40 302.60

298.30

0.90 0.80 0.25 2.00 3.90 4.40 4.45 19.30 5.30 4.00 4.00 4.05 2.00 3.00 4.00 10.90 6.91 7.90 2.60 3.65 11.00 4.00 2.00 18.00 10.20 7.95 5.90 5.00 1.27 5.00 3.00 15.80 9.00 7.85

0.81 0.77 0.24 1.99 3.87 4.29 4.26 19.30 5.30 4.00 4.00 3.61 1.80 2.70 3.60 10.24 6.04 6.91 2.27 3.19 9.62 3.50 1.75 16.04 10.16 7.92 5.81 4.92 1.25 4.73 2.95 15.56 8.86 7.75

4.44 1.09 0.90 1.79 2.08 2.87 3.43 11.38 5.46 32.75 7.85 0.56 0.94 1.22 4.13 1.34 1.82 1.65 2.52 8.38 12.24 14.69 0.24 2.80 2.03 2.19 0.89 0.99 0.84 0.80 10.25 3.57 4.58 1.73

320 141 560 151 146 147 270 615 504

1,488 513 22

175 82

187 91

157 50

149 417 731 861 23

231 234 283 167 189 68 72

578 175 213 91

2.64 3.61 3.60 2.26 2.74 0.35 0.51 1.38 2.56 0.28 1.33 0.13 1.24 1.17 0.43 2.80 2.45 1.29 0.49 0.35 0.33 0.34 1.97 2.71 2.61 2.63 3.25 3.55 0.76 1.05 2.72 0.75 0.31 1.06

1.36 1.68 3.52 0.89 1.15 0.65 1.29 3.79 3.17 3.03 9.56 0.09 1.26 1.24 1.15 0.74 2.91 0.96 0.66 1.06 3.06 3.68 0.12 0.72 2.51 3.11 0.88 0.97 1.47 0.44 0.64 0.94 0.96 0.48

3.35 27.80 40.80 20.48 22.58 12.73 9.42 11.97 20.46 2.99 14.73 1.41 2.94 3.50 2.17 15.59 23.47 11.69 13.26 0.30 5.39 5.01 7.76 27.52 19.08 21.16 21.78 24.40 8.30 7.17 0.43 12.99 16.04 18.23

Notes: - the first number (e.g. 7) of the drillhole identification numbers refers to the year the holes were drilled (2007 for the example given).

- the 41 Southeast Zone drillholes that did not intersect significant sulphide mineralization are 97306, 97308, 5374, 5415, 5432, 5458, 5460, 5461, 5462, 5463, 5465, 5466, 5469, 5470, 5473, 5487, 5497, 5502, 6516, 6539, 6542, 6577, 7593, 7594, 7595, 7600, 7604, 7614, 7619, 7621, 7622, 7629, 7630, 7635, 7637, 7638, 7640, 7641, 7645, 7646 and 7649. - the drillholes highlighted in BLUE were drilled after completion of the Company’s November 2006, G-9 mineral resource estimates

.



Table 21.2 Summary of Significant Assay Results, Drillhole Intersections,

High-Grade Abajo Zone, G-9 Deposit Drillhole From

(m) To (m)

Interval (m)

True Width (m)

Au (g/t)

Ag (g/t)

Cu (%)

Pb (%)

Zn (%)

5490 including

7599 including

7607 7608

including including

7610 7615 7620 and

7623

425.60 426.30 536.40 538.40 542.80 527.10 527.10 529.00 559.80 556.10 550.90 570.68 568.40

435.25 430.40 546.95 545.40 550.80 536.02 533.00 532.00 564.00 566.60 552.00 574.90 577.12

9.65 4.10 10.55 7.00 8.00 8.92 5.90 3.00 4.20 10.50 1.10 4.22 8.72

9.20 3.90 10.55 7.00 7.25 8.83 5.54 2.82 3.95 8.81 1.08 4.16 8.03

1.68 2.69 2.73 3.07 2.54 2.03 2.34 1.75 3.29 1.58 5.80 7.69 2.58

214 426 210 232 212 148 169 167 242 172 174

1,025 165

2.45 4.41 1.33 1.48 1.16 0.85 1.24 1.07 1.29 1.51 2.03 1.28 1.37

1.91 3.95 1.05 1.26 2.27 0.94 0.90 0.61 1.74 2.43 0.60 1.74 1.01

11.81 19.36 14.32 16.80 8.94 7.73 8.20 11.87 7.13 14.17 4.71 12.21 11.40

Notes: - the four Abajo Zone drillholes that did not intersect significant sulphide mineralization were 7612, 7616, 7625 and 7627.

Figure 21.1 – G-9 Deposit Thickness Isopach Plan Showing the Recently Drilled Holes into the Southeast and Abajo (New) Zones



22 RECOMMENDATIONS

In the opinion of MineFill, the Company’s parallel-track development of the G-9 Project is appropriate and should be supported - the Company’s approach may be justified from consideration of:

• the robust metallurgical results for G-9 mineralization over four programs;

• the VMS nature of the deposit (VMS deposits tend to be consolidated into discrete, sulphide-rich lenses in which regular metal zoning rarely occurs);

• the lateral persistence of the mineralized grades intersected thus far (September 2007);

• the history of G-9 exploration drilling (that has consistently resulted in additional resource tonnes at ever higher average resource grades); and

• the robust financial returns reflected by the results of MineFill’s preliminary cashflow model.

Infill and step-out surface drilling should continue to concentrate on more fully defining the G-9 deposit. However, other potential opportunities to the north of San Raphael fault, in what appears to be a stratigraphic horizon below the previously identified VMS deposits (i.e. at the same apparent stratigraphic horizon as the G-9 deposit), should not be overlooked. The last point is emphasized because the Campo Morado project area has many of the characteristics of a growing VMS/base metal district in which additional resources and/or new deposits might yet be found.

In view of the above, MineFill supports the continuation of the Company’s program to advance the G-9 programs through to the end of March 2008, including the completion of feasibility-level studies and detailed engineering once Measured and Indicated resources are confirmed. In this regard, MineFill concurs with the Company’s G-9 technical program to end March 2008, which program is summarized on Table 22.1.

The all-in estimated cost for the Company’s G-9 technical program summarized on Table 22.1 is US$24.89 million:

• the all-in estimated cost (by the Company) for the surface drilling program outlined is US$6,240,000 to the end of March 2008;

• the all-in estimated cost (by the Company) for decline advance is US$3.0 million per month, hence US$18.0 million for the period October 2007 to end March 2008, inclusive;

• the all-in estimated cost (by the Company) of the two planned phases of mineral resource estimates is US$150,000; and

• the all-in estimated cost (by the Company) for mine planning, engineering, economic evaluation and reporting to end March 2008 is US$500,000.



Table 22.1 Summary of The Company’s Planned Technical Program, October 2007

to end March 2008, G-9 Project Activity Period Objective Infill surface exploration drilling at 25 metre spacings into the North Zone

October 2007 to end February 2008

To facilitate upgrade of resources to the Measured and Indicated categories

Step-out and infill surface exploration drilling at 25 metre spacings into the Abajo Zone

January 2008 to end February 2008

To allow Measured and Indicated resources to be estimated

New target drilling at 50 to 100 metre spacings, to the north of G-9

March 2008 To explore for additional, G-9 mineralized occurrences

Decline advance October 2007 to end March 2008

To facilitate underground drilling and to thereby facilitate the definition of a mineral reserve base

Resource Estimation December 2007 and March 2008

To update November 2006 resource estimates (Sub-Section 19.2)

Mine planning, engineering, economic evaluation and reporting to at least pre-feasibility level

January 2008 to end March 2008

To facilitate production decision, based on Southeast, Southwest and North Zone mineral resources

As regards the surface drilling program, the Company plans to employ two surface drills to the end of February 2008 and a third surface drill during March 2008 (the latter to realize the new target drilling program outlined on Table 22.1). The average anticipated drillhole length for the surface drilling program outlined is 600 metres; G-9 Project experience shows that one surface drill can complete about 3,000 metres of drilling per month, for this average drillhole length (i.e. five holes per drill, per month). The Company’s all-in cost per metre for surface drilling is approximately US$160. The estimated all-in cost for the Company’s surface drilling program is, therefore:

• US$480,000 per month, per surface drill; or

• US$960,000 per month for October 2007 to end February 2008, inclusive, and US$1,440,000 for March 2008; hence

• US$6,240,000 for the program outlined to end March 2008.

The project budget proposed in the G-9 Technical Report dated December 2006 comprised a C$55 million program, including surface and underground drilling, access decline development, metallurgical testing and mine planning. MineFill has reviewed the budget (Section 20.2) and what has been completed to date (September 2007). It is anticipated that the December 2006 budget will cover the costs of the G-9 underground access, surface exploration and site preparation programs through to early 2008. It is further anticipated that studies will continue beyond the end of March 2008.



23 REFERENCES

AMTEL, Deportment of Gold and Silver in Campo Morado Zinc Rougher Tails, Report 06/32 dated October 3 2006.

Banner, R., Gaunt, D., Kilby, D., Taggart, P., Deng, Q. and D. Dreisinger. Technical Report on the Campo Morado Project, dated December 13, 2006.

Campa, M.F. and Coney, P.J. (1983). Tectono-stratigraphic terranes and mineral resources distribution in Mexico. Can. Jour. Earth Sci., V20, p. 1040-1051.

Centeno-Garia, E., et al. (1993). Tectonic significance of the sediments of the Guerrero terrane from petrographic, trace-element, and Nd-isotope studies. In Proceedings of the First Circum-Pacific and Circum-Atlantic Terrane Conference, Ortega-Guttierrez, F., eds. UNAM, Instituto de Geologica, pp. 30-33.

Farallon (1998). Summary Report Sample Processing, Analysis and Analytical Quality Control 1996-1998 Drill Program. Internal company document

Farallon (1999). Memo on Campo Morado Geology Model. Internal company report.

Farallon (2000). A Geostatistical Evaluation of the Geologic Resource for Reforma, El Rey, Naranjo, And El Largo Massive Sulphide Deposits At Campo Morado. Internal company report.

Freydier et al. (1993). Birth, death and accretion of a Mesozoic, intraoceanic island arc (Guerror Terrane) in the Mexican Cordillera. In Proceedings of the First Circum-Pacific and Circum-Atlantic Terrane Conference, Ortega-Guttierrez, F., eds. UNAM, Instituto de Geologica, pp. 50-51.

Garcia-Fons, J. 1998. Proyecto singular Rey de Plata. Boletin Tecnico COREMI, Ano. IV, No. 22, pp. 18-23.

G&T Metallurgical Services Limited. KM1738, A Preliminary Assessment of Response, the G-9 Deposit – Report 1, dated March 2006.

G&T Metallurgical Services Limited. KM1772, A Preliminary Assessment of Response, the G-9 Deposit – Report 2, dated April 2006.

G&T Metallurgical Services Limited. KM1811, An Assessment of Metallurgical Response from the G-9 Master Composite – Report 3, dated October 2006.

G&T Metallurgical Services Limited. KM 1951, An Assessment of the Metallurgical Response for the High Grade Master Composite – Report 4, dated April 18, 2007.

Kilby, D. and Nowak, M. Technical Report on the Campo Morado Project, dated July 31, 2004.

Kilby, D., Deng, Q., and Taggart, P., Technical Report on the Campo Morado Project, dated June 24, 2005.

Kilby, D., Taggart., P., Deng, Q., and Dreisinger, D., Technical Report on the Campo Morado Project, dated October 12, 2005.

Kilby, D. and Gaunt, D. Technical Report on the Campo Morado Project, dated November 30, 2005.



Lang et al. (1996). Terrane deletion in the northern Guerrero State, Geofisica Internacional. V 35 (4), pp. 349-359.

MDA (1997). Campo Morado Geologic Resources Reforma and Naranjo Deposits, Guererro State, Mexico. Consultants report, Mine Development Associates, Reno, NV.

Miranda-Gasca. (1995). The volcanogenic massive sulphide and sedimentary exhalative deposits of the Guerrero Terrane, Mexico. Univ. of Arizona, unpub. Ph.D. thesis, 246 p.

Monod et al. (1994). P7.

Niosi, D.W. (1996). Initial Polygonal Estimates from Diamond Drilling Campaigns at Reforma, Naranjo, El Rey and El Largo Deposits. Report for Farallon Resources Limited.

Nowak, M. (1999). Campo Morado Resource Assessment. Consultants report by Nowak Consultants, Vancouver B.C.

Oliver, J.L. (1997). Summary of Petrographic Features of Rock Alteration: Reforma and Naranjo Massive Sulphide Lenses, Oliver Geoscience International Limited.

Oliver, J., Payne, J., Rebagliati, C.M., Cluff, G.R. (1999). Precious-Metal-Bearing Volcanogenic Massive Sulphide Deposits, Campo Morado, Guerrero, Mexico.

SGS Lakefield Research Limited. An Investigation into An Innovative Grinding System for the Campo Morado Circuit Based On Small-Scale Data, Project 11335-001 dated October 4, 2006.

Titley, E. (1996). Manual for Core Logging and Data Compilation on a Diamond Drilling Project, Internal company document.

Titley, E. and Reid, D.R. (1999). Summary Report, Massive Sulphide Metal Zone Modelling and Polygonal Resources Estimation, 1996-1998 Drill Program. Internal Company Report.

MINEFILL SERVICES, INC. Page 127 CAMPO MORADO PROJECT


24 DATE AND SIGNATURE PAGE

This Technical Report is dated December 27, 2007. The data effective date for this Technical report is September 23, 2007.

/s/ David Stone

_____________________________ Dr. David M. R. Stone, P.Eng.

Minefill Services, Inc.

/s/ Stephen Godden _____________________________ Stephen J. Godden, F.I.M.M.M., C.Eng.

S. Godden & Associates Limited

/s/ David Gaunt _____________________________ J. David Gaunt P. Geo.

Hunter Dickinson Inc.



David Stone, P.Eng. I, David M.R. Stone, P.Eng., do hereby certify that:

1. I am currently employed as a Mining Consultant and President of Minefill Services, Inc., PO Box 725, Bothell, Washington, USA 98041. 2. I graduated from the University of British Columbia with a Bachelors of Applied Science in Geological Engineering in 1980. In addition I have a Ph.D. in Civil Engineering from Queen's University (1985) and an MBA from Queen's University (2002). 3. I am a licensed Professional Engineer (P.Eng.) in British Columbia (Reg # 15025) as well as numerous other Canadian and US jurisdictions. 4. I have worked as a consulting mining engineer for the past 25 years, since graduation from university. 5. I have read the definition of "qualified person" set out in National Instrument 43- 101 ("NI 43-101") and certify that by reason of my education, affiliation with a professional association (as defined by NI 43-101) and past relevant work experience, I fulfill the requirements to be a "qualified person" for the purposes of NI 43-101. 6. I am co-author of this technical report, entitled “Revised Technical Report on the 2007

Program and Preliminary Assessment of the G-9 Deposit, Campo Morado Project, Guerrero State, Mexico” dated December 27, 2007, (the “Technical Report”) relating to the G-9 Deposit of the Campo Morado property. I am responsible for technical oversight and discussion of approach regarding the preliminary assessment in Section 20, for Sections 18 and 19.1 and for review of Section 19.2.

7. I have considerable experience related to the preparation of engineering and financial studies, including Preliminary Assessment reports, pre-feasibility and feasibility studies.

I have also been responsible for a number of mineral resource estimates, the technical reports for which have been filed on www.sedar.com.

8. I have visited the Campo Morado Property on numerous occasions, most recently in February

2004. 9. I am independent of the issuer, Farallon Resources Ltd., applying all of the tests in Section 1.5 of National Instrument 43-101.

10. I have read National Instrument 43-101 and Form 43-101F1, and the Technical Report has been prepared in compliance with that instrument and form.

11. As of the date of the certificate, to the best of my knowledge, information and belief, the technical report contains all scientific and technical information that is required to be disclosed to make the technical report not misleading. 12. I consent to the filing of the Technical Report with any stock exchange and any other regulatory authority and any publication by them, including electronic publication in the public company files on their websites accessible by the public, of the Technical Report.

Dated this 27th day of December, 2007.

/s/ David Stone

David M.R. Stone, P.Eng



Stephen J. Godden, F.I.M.M.M., C.Eng.

I, Stephen J. Godden, F.I.M.M.M., C.Eng., do hereby certify that:

1. I am currently employed as a Mining Consultant and Director of S. Godden & Associates Ltd., 17, Roundwood Drive, Welwyn Garden City, HERTS AL8 7JZ, UK.

2. I am an Associate of MineFill Services, Inc., PO Box 725, Bothell, Washington State, USA 98041.

3. I graduated from Leicester University, UK, with a Bachelor of Science degree in Mining Geology (1977). In addition, I have a Master of Science degree in Mining Engineering (Rock Mechanics and Excavation Engineering) from University of Newcastle-upon-Tyne, UK (1982).

4. I am a Fellow of the Institution of Materials, Minerals and Mining and a registered Chartered Engineer (C.Eng.) in the UK (Reg. # 5994).

5. I have worked as a mining consultant for the past 20 years.

6. I have read the definition of “qualified person” set out in National Instrument 43-101 (“NI 43-101”) and certify that by reason of my education, affiliation with a professional association (as defined by NI 43-101) and past relevant work experience, I fulfill the requirements to be a “qualified person” for the purposes of NI 43-101.

7. I am the co-author of this technical report entitled “Revised Technical Report on the 2007 Program and Preliminary Assessment of the G-9 Deposit, Campo Morado Project, Guerrero State, Mexico” dated December 27, 2007, (the “Technical Report”) relating to the G-9 Deposit of the Campo Morado property. I compiled all sections, reviewed previous reports and news releases on the project and conducted due diligence by discussing approaches with the geological, resource assessment, metallurgical and mine engineering professionals who completed relevant studies on the project. I prepared the preliminary assessment in Sections 20 and I am responsible for other sections of the report except for Sections 18, 19.1 and 19.2.

8. I have considerable experience related to the preparation of engineering and financial studies for base metal and precious metal mines, including Preliminary Assessment reports, due diligence audits, pre-feasibility and feasibility studies.

9. I have visited the Campo Morado property on June 19 and 21, 2007.

10. I have had no prior involvement in the Campo Morado property prior to preparing this Technical Report.

11. I am independent of the issuer, Farallon Resources Ltd., applying all of the tests in Section 1.5 of National Instrument 43-101.

12. I have read National Instrument 43-101 and Form 43-101F1, and the Technical Report has been prepared in compliance with that instrument and form.

13. As of the effective date of the certificate, to the best of my knowledge, information and belief, the Technical Report contains all scientific and technical information that is required to be disclosed to make the Technical Report not misleading.

14. I consent to the filing of the Technical Report with any stock exchange and any other regulatory authority and any publication by them, including electronic publication in the public company files on their websites accessible by the public, of the Technical Report.

Dated this 27th day of December, 2007.

/s/ Stephen Godden

Stephen J. Godden, F.I.M.M.M., C.Eng.



James David Gaunt, P.Geo. 24179 McClure Drive, Maple Ridge, British Columbia

[email protected]

I, James David Gaunt, P.Geo., do hereby certify that: 1. I am an employee of Hunter Dickinson Inc, with a business office at Suite 1020-800 West Pender

Street, Vancouver, British Columbia.

2. I am a graduate of Acadia University (B.ScS , Geology, 1985).

3. I am a member in good standing of the Association of Professional Engineers and Geoscientists of British Columbia, License number 20050.

4. I have practiced my profession continuously since graduation and have been involved in and managed exploration projects and resource calculations in Canada, United States of America, Mexico, and South America.

5. I have read the definition of “qualified person” set out in National Instrument 43-101 and certify that by reason of my education, affiliation with a professional association, as defined by NI 43-101, and past relevant work experience, I fulfill the requirements to be a “qualified person” for the purpose of NI 43-101.

6. I am responsible for the data verification and resource estimate for G-9, specifically section 19.2 in the technical report entitled, “Revised Technical Report on the 2007 Program and Preliminary Assessment of the G-9 Deposit, Campo Morado Project”, December 27, 2007, which relates to the Campo Morado Project, Guerrero State, Mexico. I have provided geological services for Farallon on the project since 2005.

7. I have considerable experience related to resource estimation, including Volcanogenic Massive Sulphide styles of deposits such as obtained at Campo Morado.

8. I visited the Campo Morado Project from October 25 to October 29, 2005. I am familiar with the geology, topography, and physical features of the property.

9. I am not independent of the issuer, Farallon Resources Ltd.

10. I have read National Instrument 43-101 and Form 43-101F1, and the subject technical report has been prepared in compliance with that instrument and form of reporting.

11. As of the date of this certificate and to the best of my knowledge, information and belief, the subject technical report contains all information that is required disclosed to make the report not misleading.

12. I consent to the filing of the subject Technical Report with any stock exchange and any other regulatory authority and any publication by them, including electronic publication in the public company files on their websites accessible by the public, of the subject Technical report.

Signed at Vancouver, British Columbia on the 27th day of December, 2007. /s/ David Gaunt James David Gaunt, B.ScS., P. Geo.

G-9 DEPOSIT, CAMPO MORADO PROJECT TECHNICAL REPORT ON THE 2007 PROGRAM AND PRELIMINARY ASSESSMENT OF...

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