Hermosa Project - Mineral Resource Estimate Update

Estimate of Mineral Resources for Hermosa

When comparing the total overall estimated Mineral Resource for the Taylor carbonate replacement deposit (CRD) as at 30 June 2021 (Table A), to the previously published 30 June 2020 estimate (Table B), the update features higher zinc, lead and silver grades, with zinc equivalent grade increasing from 7.62% to 8.61%, partially offsetting a 17% reduction in tonnage. The update reflects improvements to the previous geological model based on revised interpretation and new drilling.

The estimates of Mineral Resources are reported in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, 2012 (JORC Code) and the Australian Securities Exchange Listing Rules. The breakdown of the total estimates of Mineral Resources into the specific JORC Code categories is contained in Table A. This report summarises the information contained in the JORC Code Table 1 which is included in Appendix 1 to this report.

Geology and geological interpretation

The Taylor Deposit within the Hermosa project is a CRD style zinc-lead-silver massive sulphide deposit. It is hosted in Permian carbonates of the Pennsylvanian Naco Group of south-eastern Arizona (Appendix 1 - Figure 3).

The Taylor Deposit comprises of the upper Taylor Sulphide and lower Taylor Deeps domains that have a general northerly dip towards 300° and are separated by a low angle thrust fault. Mineralisation within the stacked profile of the thrusted host stratigraphy extends 1,200m from near-surface and is open at depth. Mineralisation is modelled for multiple litho-structural domains for an approximate strike of 2,500m and width of 1,900m (Appendix 1 - Figure 5).

Drilling techniques

The Mineral Resource Estimate is based on data from 580 surface diamond drill holes of HQ (95.6mm) or NQ (75.3mm) diameter (Appendix 1 - Figure 4), as well as reverse circulation drilling in the upper parts of the deposit.  Only diamond core drilling from 273 holes in the Taylor Sulphide area has been utilised for Mineral Resource estimation purposes. Vertical drilling was undertaken for 146 of the 273 holes used in this resource estimate. Since August 2018, holes have been drilled between 60° and 75° dip to maximise the angle at which mineralisation is intersected. Oriented drilling was introduced in October 2018 to incorporate structural measurements into geological modelling for stratigraphy and fault interpretation.

Sampling and sub-sampling techniques

289,660m of drilling used for estimation, geometallurgy and geotechnical purposes is diamond core, sampled at predominantly 1.5m (5 feet) intervals on a half-core basis, terminated at litho-structural boundaries. Samples were submitted for preparation at an external ISO-17025 certified laboratory, Australian Laboratory Services (ALS), in Tucson. Preparation involved crushing to 70% passing 2mm mesh, a rotary split to 250g and pulverisation to 85% passing 75µm from which a 0.25g split is taken for digestion and analysis. The mineralised intersections were verified by geologists throughout each drilling program and reviewed independently against core photos by an alternate geologist prior to geological interpretation.

Sample analysis method

Samples of 0.25g taken from a 250g pulp were processed at ALS in Vancouver where they were digested using a four-acid leach method. This was followed by Inductively Coupled Plasma - Atomic Emission Spectroscopy (ICP-AES) determination for 33 elements. A range of certified reference materials (CRMs) was routinely submitted to monitor assay accuracy, with low failure rates within expected ranges for this deposit style, demonstrating reliable laboratory accuracy.

Results of routinely submitted field duplicates to monitor sample representivity, coarse crush and laboratory pulp duplicates to quality control sample preparation homogeneity, and certified blank submissions to detect cross-contamination were all within an acceptable range for resource modelling. 

Estimation methodology

Resource estimation was performed by two passes of ordinary kriging and a final outer pass as inverse distance squared interpolation for four elements of economic interest (Zn, Pb, Ag, Cu), two potentially deleterious elements (As, Mn) and four tonnage estimation elements (Fe, Ca, S, Mg). Search estimation criteria are consistent with geostatistical models developed for each estimation domain according to the appropriate geological controls. Validation includes statistical analysis, swath plots and visual inspection.

Specific gravity measurements from drill cores were used as the basis for estimating dry bulk density in tonnage calculations for both mineralised and non-mineralised material.

Mineral Resource classification

Mineral Resource classification criteria are based on the level of data informing both the geological model and grade estimation. Criteria including average distance of the block estimate relative to sampling, number of samples used in the estimate, and a relative indicator of estimation quality. Measured Resources are reported in areas where blocks are interpolated with data an average distance of approximately 50m from the block centroid. Indicated Resources are likewise estimated from average contributing data spacing of approximately 150m. Inferred Resources are constrained by the reporting of estimates to approximately 300m beyond data.

Mining and metallurgical methods and parameters

Reasonable prospects for eventual economic extraction have been determined through assessment of the Mineral Resource at a PFS level. Factors relevant to these prospects have been integrated through the use of a robust NSR calculation and application of this to blocks to assess the likelihood of a block to be economic on the basis of PFS-level cost assumptions on mining, processing, G&A, smelting, etc. Underground mining factors and assumptions for longhole stoping on a sub- or full-level basis with subsequent paste backfill are made based on industry benchmark mining production and project related studies.

Cut-off grade

The Taylor Deposit of the Hermosa project is a polymetallic deposit that uses an equivalent NSR value as a grade descriptor. Input parameters for the NSR calculation are based on South32's long term forecasts for zinc, lead and silver pricing; haulage, treatment, shipping, handling and refining charges. Metallurgical recovery assumptions differ for geological domains and vary from 87% to 94% for zinc, 94% to 95% for lead, and 87% to 92% for silver.

A dollar equivalent cut-off of NSR US$80/dmt forms the basis of assessment for reasonable prospects for eventual economic extraction, supported by scoping level studies.

Competent Person's Statement

The information in this report that relates to the Mineral Resource Estimate for the Taylor Deposit represents an estimate as at 30 June 2021 and is based on information compiled by Matthew Hastings.

Mr. Hastings is a full-time employee of SRK Consulting, Inc. and is a member and Chartered Professional of the Australasian Institute of Mining and Metallurgy. Mr. Hastings has sufficient experience relevant to the style of mineralisation and type of deposit under consideration, and to the activities being undertaken, to qualify as a Competent Person as defined in the 2012 Edition of the 'Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves'. The Competent Person consents to the inclusion in this report of the matters based on his information in the form and context in which it appears.

Additional information is contained in Appendix 1.