The arrival of the drill rig is expected shortly with drilling scheduled to start in March. We are fortunate to have secured a new drill since equipment availability is scarce due to the very high level of drilling activity in the sector.

While we initially had productivity problems with cut-and-fill, the new mine manager, hired in May 2010, turned the project around and substantially increased productivity. We are now mining the cut-and-fill areas on a regular basis at a 200% greater productivity than shrinkage mining. The success in cut-and-fill, plus the opening of new mines, has led to the point where we are now capable of mining up to 1000 tonnes per day. This tonnage rate can be increased by adding more underground mining equipment to open additional stopes that are already available and identified. Consequently, we have sourced the necessary equipment and it is scheduled to be delivered to the site in the second quarter.

At the Sulphide Mill, several types of material were tested to optimize recoveries and the circuit has been modified to increase production capacity. This process is not completed but the additional work needed is relatively simple and we are working to complete it as soon as possible.

At the Oxide Mill, the challenge was that a high level of copper in the feed translated to high copper dissolution and lowered gold and silver recoveries. We could not increase the cyanide concentrations to enhance recoveries without causing havoc in the Merrill Crowe system. We tried several experimental methods before selecting one, testing it in the laboratory, then batch testing, before installing a continuous circuit to remove the copper from the solutions. Initial tests allowed us to remove between 98 and 100% of the copper, thereby producing a copper concentrate with good concentrations of gold and silver. With the new resulting solution being very low in copper, we can now increase the cyanide concentrations in order to improve gold and silver recoveries by 10% or more.

Our experience to date will be valuable information for our expansion plans in the future. We believe that with the current mineral resources alone, the Velardeña, Chicago and San Diego properties (collectively the “Velardeña District”) could support a series of mines that together would generate at least 5000 tonnes per day or greater. At this rate, the Velardeña District would potentially produce over 5 million ounces of silver, 120,000 ounces of gold and 27 million pounds each of lead and zinc, or about 12 million silver equivalent ounces based on current commodity prices. Note that, until a prefeasibility study is completed, there are no assurances that these operational estimates are accurate or will be economically viable.