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Ying Silver Project


Introduction

The high grade resource potential at the Ying Silver Project is significant in driving Silvercorp’s growth.
The Ying Silver-Lead-Zinc (“Ag-Pb-Zn”) Project is in the Luoning area of western Henan Province of central China. Five Exploration Permits totaling about 52.64 km 2 cover the Ying Project. As announced by Silvercorp on March 30, 2006, a Mining Permit has been issued by Chinese authorities, covering 9.95 km 2 over the SGX (Sha Gou) Area of the Ying Project.

Chris Broili, C.P. Geo., L.P. Geo., completed the first and second technical reports prepared on the Ying Project on April 21, 2004 (the “2004 Report”) and April 18, 2005 (the “2005 Report”) and co-authored with Cathy Shuk Yim Fong, P.Eng., and Jasman W. Yee, P.Eng., a third scoping-level report on April 18, 2006. Chris Broili, C.P. Geo., L.P. Geo. co-authored with Cathy Shuk Yim Fong, P.Eng., Jasman W. Yee, P.Eng. and Michael A. Petrina, P.Eng. completed a further technical report ( May 26, 2006) primarily updated mineral resource estimates and providing updates on exploration activities. The last previous resource estimates were made more than a year ago in the 2005 Report.

The Ying Project is the result of a co-operative joint venture contract dated April 15, 2004, between Victor Mining Ltd. (“Victor”), a wholly owned subsidiary of Silvercorp Metals Inc. (“Silvercorp”), and Henan Non-Ferrous Geological & Mineral Resources Co. Ltd. (“HNGMR”). Pursuant to this contract, a Chinese co-operative joint venture company, Henan Found Mining Ltd. (“Found”), was established to hold 100% of the Ying Project. Victor has made the required capital contributions to earn a full 77.5% interest in Found. All necessary Chinese government approvals have been obtained. A business license and a mining permit have been issued which allow Found to initiate production on the property. Mr. Myles Gao, P. Geo., President of Silvercorp, is the General Manager of Found. Reference to Silvercorp in this report includes, where appropriate, reference to Found, which owns and operates the Ying Project.

On the Ying Property, surface channel sampling and underground channel sampling, averaging 1.00 meter (“m”) wide, has identified to date more than 42 mineralized veins. The mineral deposit type is similar to the mesothermal veins of the Coeur d’Alene District in Idaho, U.S.A.. Mineralization is hosted in a set of quartz-carbonate veins cross-cutting Precambrian-age mafic and felsic gneisses. The western part of the project (“SGX”) consists of quartz-carbonate veins which host silver-lead-zinc mineralization manifested as 22 mapped vein-alteration zones. Recent tunneling and underground mapping has identified many more veins. The veins at the surface are usually a kilometer (“km”) or more long and follow N-NE trending structures, sometimes filled by altered andesite dikes and occasionally as altered selvages within the gneiss along these structures.

From August 2004 to April 2006, a total of 27,574 m of drifting, declines and raises, 657.7 m of shafts and 17,697 m of underground and surface drilling was completed, and 2,788 m of access tunnels were widened. The underground work and drilling have focused primarily on twelve veins (S2, S2E, S4, S6, S7, S7-1, S8, S14, S16E, S16W, S16W1, S21) which can be accessed through three tunnels (CM101, CM102, CM103).

The recent work on the Ying Property has defined high-grade underground silver-lead-zinc mineral resources in 14 veins which average 0.42 m in thickness. The mineralization, defined by channel sampling of new underground tunnels and underground drilling, occurs as discrete tabular quartz-carbonate veins, which crosscut Precambrian-age mafic and felsic gneisses. To estimate the mineral resources contained in these veins, resource block models were constructed with polygonal methods on longitudinal vein sections using the same parameters – cutoff grade, cutoff thickness, area of influence, etc. – as those used in the last Ying resource estimation done one year ago (Broili, 2005).

This estimated resource (measured plus indicated) is nearly twice the resource reported in the previous resource estimation (the 2005 Report by Broili) due largely to the fact that the new estimation is based on parts of 14 veins as compared to only five veins in the 2005 Report.

Of 27,574 m of tunnels completed since August 2004, about 17,300 m are mining development tunnels. The mine development is sufficiently advanced that upon reception of the mining permit, preliminary production was immediately started in ten of more than 20 initial stopes that have developed on various elevation levels on seven different veins.

The custom milling of 40,711 tonnes of diluted by-product ore extracted from exploration and development tunnels indicate that Ag, Pb, and Zn contained in the Ying veins can be easily recovered. The Pb-Ag and Zn concentrates produced satisfy the requirements of smelters. This milling test also confirms that it is economically viable to use off-site flotation mills to treat diluted ores.

Concentrate sales contracts have been signed with several lead and zinc smelters stipulating terms of delivery at mine site against cash advance from smelters. The payable prices for lead, silver and zinc metals are 76%, 75% and 70% respectively of spot prices quoted on the Shanghai Metal Exchange (“SME”).

Currently, sixteen shrinkage stopes are being mined at the Ying Mine. An additional four stopes are expected to be mined in 2 to 3 months, reaching a phase one mining capacity of 600 tonnes per day (“tpd”). Given enough time, it is reasonable to assume that the company can reach its production goal without incurring substantial capital cost. Production for the first three years is planned through horizontal portals; thereafter, shafts will not be used.

Three shafts equipped with hoists are being sunk and are expected to reach their intended depth of 210 m by the end of 2006. The shafts will each be 3.8 m in diameter, and each capable of hauling 150,000 tonnes of material per year (based on 300 days/year).
Using the measured plus indicated resources reported in this report, a 100% dilution factor and a 95% recovery rate for the high-grade resources, a potentially mineable measured plus indicated resource is calculated to be 1,542,078 tonnes grading 767 grams/tonne (“g/t”) (24.68 troy ounces/metric tonne, “oz/t”) Ag, 13.24% Pb and 4.31% Zn. Assuming a mining rate of 140,000 tonnes for the 2006/2007 fiscal year and 300,000 tonnes per year thereafter, the resources at Ying could sustain mine production for about six years. The 97,922 tonne short fall is expected to be filled by converting part of the inferred resource to measured or indicated resources. As a result of ongoing geological interpretation which developing a geological understanding of the Ying Property, and considering its similarity to the Coeur d’Alene district in North America, the aggressive tunneling and drilling program recommended in this report for 2006/2007 could extend the mine life far beyond six years.

A 600 tpd mill, currently being constructed 17 km from the Ying Property, is expected to be completed by the end of March 2007. During the first year of production, custom mills will be used to process ore. Starting April 2007, Found’s own 600 tpd flotation mill is expected to start producing Pb-Ag and Zn concentrates.
Based on net metal prices of US$7.50/oz Ag, US$0.38/lb Pb, and US$0.71/lb Zn, and assuming production cost of US$40.94 per tonne mined for the first year and US$36.73 per tonne mined thereafter with recovery rates of 95% for Pb, 90% for Ag, and 75% for Zn, the capital payback period is projected to be zero as all the capital expenditures are projected to be financed from the first year’s cash flow. Chinese regulations allow foreign invested companies, such as Found, tax-free income for the first two years. Income is taxable at 15% in years 3 to 5, and taxable at 30% thereafter. However, this projection is based on mineral resources which are not mineral reserves, and therefore do not have demonstrated economic viability.

If revenue from lead and zinc is used to cover production cost, then unit silver production cost adjusted for lead and zinc credit is projected to be negative US$5.02 to negative US$4.72 per ounce. If lead and zinc are treated as free credits and only silver revenue is used to cover the production cost, then the unit silver production cost is projected to be US$1.62 per ounce.

Along with capital budgets of US$13,511,471 for the mine development and proposed mill, the authors recommend the following exploration plan and budget. The program is designed to upgrade inferred mineral resources to measured and indicated resources and discover additional mineral resources in the Ying Project Area. The recommended Phase 3 Exploration Program for 2006 totals US$2.85 million and is presented as follows:

1. Exploration tunnels on known veins:
10,790 m of underground tunneling is planned with a budget of US$1.1 million (about US$102 per meter). These cross-cutting and drifting tunnels will be developed on the 14 known mineralized veins through access tunnels CM101, CM102, CM103, PD650, PD680, PD700, YPD01, YPD02, YM01 at the SGX (Sha Gou) Area and C29 and C31 veins at the Si Dao Gou (SDG) Area with intentions of upgrading and expanding silver resources from the veins.

2. Exploration tunnels on 12 veins at a budget of US$0.67 million: 4,540 m of tunnels have been designed to intersect at the northeast end of veins S9, S11, S12, S13, S14 and the S8 vein at the Yue Liang Gou Camp (YLG). A further 2,100 m of tunnels will be developed at the southwest end of S8 vein to detect the seven northeast trending veins at the Hou Zhang Gou Camp (HZG) where massive galena lenses with more than 80 oz/t Ag were recently discovered.

3. Drilling: US$1.08 million for 32,800 m of drilling are planned, averaging US$33 per meter. The drilling includes 71 underground holes totaling 25,705 m and 16 surface holes totaling 7,090 m. Underground drill holes together with exploration tunnels are designed to test the continuity of different mineralized veins down-dip and along strike, to further upgrade mineral resource categories and convert the resources to reserves.



Resources Estimate for Parts of Thirteen Veins

1. Resource Geology

Tunnels and diamond drilling completed since the last resource update continue to demonstrate that the high-grade pockets along the veins pinch-and-swell along strike and down-dip. This pinching and swelling can easily be seen in the drifts and tunnels. In addition, grade variation plots along veins demonstrate the pinching and swelling, with the pinches below the 1,250 g/t Ag-equivalent line and the swells above the 1,250 g/t Ag-equivalent line. This is most apparent on veins S14, S16W and S16W1 where tunnels driven on three levels along the strike, range from 550 to 1,200 m long.

Tunneling and drilling show that high-grade pockets can extend over 325 m down-dip and 215 m along strike. Cross-sections indicate very good grade and thickness continuity vertically with less continuity horizontally. An exception is the S8 vein, where high-grade pockets have a longer strike length than dip length. These high-grade pockets constitute as little as 16.42% of the S21 vein to as much as 56.92% of the S7-1 vein, averaging 31.82% for all veins. Tunnels completed to date expose these high-grade pockets within shear structures. Future exploration should continue to target these high-grade pockets.


2. Resource Estimates

The Ying mineralization is polymetallic and the mineral resources are reported in terms of a silver-equivalent grade, as well as separate individual metal grades.

The long-term metal prices used for calculating the silver-equivalent values are:

Silver US$6.50 / troy ounce
Lead US$0.40 / pound
Zinc US$0.45 / pound

Starting in November, 2004, shipments were made to off-site flotation mills and smelters with demonstrated recovery rates of 95.0% for lead, 90.0% for silver and 75.0% for zinc. However, the silver-equivalent calculations reported herein reflect gross metal content and have not been adjusted for these metallurgical recoveries.

The average thickness of veins in the measured resource category is 0.49 m, veins in the indicated category average 0.37 m thick, and combined measured plus indicated thickness is 0.42 m. Veins in the inferred resource category average 0.45 m in thickness.


Recent Exploration Progress
1. Exploration work completed by Silvercorp from 2004 to March 2005:
· Expanded all the underground workings on five of the SGX veins:
o tunnel enlarging: 1,271 m
o declines: 298 m
o undercut drifting: 1,897 m
o main tunnel: 497 m
o raise: 200 m
o ventilation raise: 102 m
o underground drilling: 15 holes for 1,376 m
o sampling and metallurgical work

2. Exploration work completed by Silvercorp from March 2005 to April 2006: · Expanded all the underground workings on twelve of the SGX veins:
o tunnel enlarging: 1,467 m
o declines: 816.54 m
o undercut drifting: 18,887.54 m
o main tunnel: 5,216.01 m
o raise: 2,569.14 m
o ventilation raise: 84.90 m
o shaft: 657.70 m
o underground drilling: 79 holes for 12,487.98 m
o surface drilling: 12 holes for 5,209.35 m
o sampling and metallurgical work
· Reconnaissance exploration outside the SGX Area.


3. Recent Silvercorp Exploration Progress at SGX area:

Most of Silvercorp’s recent exploration work has been confined to the tunneling and drilling programs in the SGX Area now under a mining license.

In the 2005 Report, Chris Broili emphasized the necessity of understanding the controls for the Ying mineralization. To this end, a second phase program was designed to further define the mineralization with a budget of US$3,300,000 for development of 13,000 m of exploration tunnels, 900 m in three shafts and 10,000 m of underground drilling. Additional funds of US$1,700,000 were budgeted for pilot test mining and milling, mining permits and logistics.

At the SGX Area, 2, 90 3 m of underground development were completed by HBMG&MR prior to Found acquiring the property. From August 2004 to April 2006, Found completed a total of 27,574 m of drifts, declines, and raises, 657.7 m of exploration shaft and 17,697 m of underground and surface drilling. The tunneling and underground drilling focused on veins S2, S6, S14, S16E and S16W. Additionally, 1,468 m of several main access tunnels were widened to 2.0 x 2.2 m from 2.0 x 1.8 m. Currently, veins S1, S2, S4, S5, S6, S7, S14, S16E, S16W, S8 and S17, S21 can be accessed through tunnels CM101, CM102 and CM103. Several new veins were discovered relating to the known veins. These include S2E, S7-1, S7-2, S16W1, S16E S16E3, S16E4 and a substantial extension of S21 from approximately 200 m to more than 950 m.

S2 Vein — The S2 Vein has not been extended since March, 2005, but a spur vein, S2E, was found adjacent to S2 as discussed below.

S2E Vein — A number of spur structures from the primary structure hosts the S2 vein. The most significant secondary vein, S2E, is identified at the 496 m and 460 m elevations (“levels”) in an access tunnel and is intersected by drill holes. The vein extends 350 m along strike and 300 m down-dip to the northwest. A total of 307 m of drifting and 51 m of raising has exposed the S2E vein which averages 0.47 m thick.

S4 Vein — The narrow structure which the S4 vein follows was traced for 550 m on the surface north of the main access tunnel (CM103) by trenching. This tunnel intersected the structure at the 549 m level with minimum mineralization; however massive galena was identified in the vein on the 496 and 460 m levels via two declines from the 549 and 496 m levels in the tunnel.
S6 Vein — Massive galena zones in the S6 vein were exposed in drifts made by the previous operators. Expansion along a decline failed to intersect substantial mineralization but two drill holes intersected noteworthy mineralization 300 to 400 m deeper than the CM 102 access tunnel.

S7 Vein — Previously mapped by surface trenching and limited tunneling, the S7 vein extends northeast for 3.5 km to a down-dip depth of 150 m toward the northwest. A new tunnel exposed 200 m of massive galena in the S7 vein, and extensive zones within this vein remain to be explored. Additionally, two new spur veins adjacent to S7 were found.

S8 Vein — The S8 vein extends northeast for 4.1 km and 275 m down-dip to the northwest. The vein was extensively mined in many sections at different levels above 580 m elevation from the Mia Gou (MG) camp, at the northeast end of the vein, to the Hou Zhang Gou (ZG) camp, at the southwest end of the vein. Silvercorp is currently exploring the vein through four access tunnels. Drifting has exposed 200 m of massive galena zones within the S8 vein. Extensive zones within this vein remain to be explored.

S14 Vein — Updated mapping combined with new tunneling and drilling defined massive galena along 550 m level and 200 m down-dip. This massive galena is fairly continuous with 40.8% of the vein above cut-off grade. The vein ranges from 0.1 m to 1.0 m thick. A total of 135 channel and chip samples from drifts, raises, and stopes average 2,099 g/t silver, 47.27% Pb, and 3.61% Zn (equal to a silver equivalent grade of 4,255 g/t or 136.79 oz/t) over an average thickness of 0.36 m. Core drilling on initial 40-50 m centers tested the down-dip extension of this massive zone.

S16 Vein — Previously defined by surface trenching and limited tunneling, the S16 vein consists of several massive galena with quartz vein spurs with quartz along a narrow structure extending to 300 m depth over 2 km. The vein structure splits into two branches where it cross-cuts CM102. About 535 m north of the CM102 intersection, CM103 also intersected at 570 m elevations two north-striking, east-dipping veins, which are splits of S16. These occur as two or more parallel spurs, 10 to 50 m apart, now identified as the S16W, S16E and S16E1 veins. Locally the spurs merge, so this relationship is not consistent .
Massive galena is abundant along the S16W and S16E veins, ranging from 0.1 to 1.0 m thick on three levels. S16E and S16W are north-striking, east-dipping veins, mapped originally as branches of the S16 vein, but they merge into a single vein about 50 m north of CM102. Both veins are mapped for more than 2,000 m.
The S16 vein consists of intermittent zones of massive galena extending 950 m along strike and 300 m down-dip. Massive galena, common along both the S16W and S16E veins, ranges from 0.1 to 1.0 m in thickness where exposed on three levels.
S16W1 Vein — The S16W1 vein is not found on the surface and was only recently recognized in tunnels at SGX. It is along the west flank of the S16W vein. Both veins are nearly parallel, range from 1.0 to 8.1 m apart and locally merge. Most of these two veins are massive galena. The S16W1 vein was first discovered during excavation of side tunnels and draw-points. At 640 m elevation, three crosscut tunnels perpendicular to a north drift along the S16W also intersected the S16W1 vein.
Intersecting the vein at three different elevations from three access tunnels has defined the veins for 750 m north-south to a depth of more than 80 m . Currently the vein is being explored by drifting along the vein through access tunnels CM101 (640 m level), CM102 (570 m level) and CM103 (560 m level). A number of crosscut tunnels have also been designed to intersect the vein at the 534 m through CM102 and CM103.

S21 Vein — The S21 vein, previously mapped by a Chinese geological team for about 100 m to the northeast, crops out east of the S16E vein. It is cut by the main access tunnel CM103 but does not show mineralization. The discovery surface drill hole, meant to test the S16E and S16W veins, intersected the S21 vein 332 m from the surface. A second hole intersected the S21 vein 111 m from the surface. Two underground drill holes from the CM102 tunnel also intersected the S21 vein.
Drilling, tunneling and surface mapping work have now extended the S21 vein for about 1,000 m. With this significant discovery of massive galena mineralization, the S21 vein is now being explored with one surface drill rig, one underground drill rig and by tunneling from three access tunnels.

S7-1 Vein — The S7-1 vein, 18 to 20 m west of the S7 vein, was documented by previous geological work. The vein was intersected by all three access tunnels and by one crosscut. To date, drifting along 93.5 m found 83.5 m of massive galena and sphalerite. Limited assay results have favourable zones up to 0.3 m with 1,949 g/t Ag, 25.32% Pb and 21.03% Zn. Current tunneling found the vein over 700 m to a depth of 100 m. The S7-1 vein is parallel to the S7 vein, extends northeast and dips steeply northwest. Exploration of the vein consists of drifting parallel to an existing drift on two elevations through two main access tunnels.

S7-2 Vein — The S7-2 vein is the first from the SGX Area recognized as carrying a gold-rich vein, and represents a different mineralization event compared to the silver-rich veins in the SGX Area. Not only is the mineralization different, but also the alteration of wallrock (diabase) along the vein is different (specifically silicification of the wallrock). The vein also has much more pyrite than any other vein on the property. S7-2 only occurs at the Yue Liang Gou (YLG) camp area and is located between S7 and S8 veins, subparallel and connects to S8 vein at the northeast end and to S7 vein at the southeast end.
The S7-2 vein was traced on the surface for 980 m by a Chinese geological team, however its gold-rich character was not recognized due to inadequate sampling. The vein was first intersected by tunnel YPD02 while exploring the S7 vein at the 565 m level. In tunnel YM01, a crosscut also intersected the vein at 585 m elevation. Using a 1.0 g/t Au cut-off, three gold zones have been defined in the horizontal dimension: (1) the South Zone, which is 84.7 m long, grades 9.65 g/t Au, 19.7 g/t Ag, 1.22% Pb, and 0.48% Zn, and averages 0.25 m true width; (2) the Central Zone, which is 80.3 m long, contains 4.48 g/t Au, 11.46 g/t Ag, 0.66% Pb, and 0.47% Zn, and averages 0.41 m true width; and (3) the North Zone, defined in YM01 at the 585 m level, is 18 m long (open at both ends), contains 4.44 g/t Au, 12.93 g/t Ag, 0.59% Pb, and 0.52% Zn, and averages 0.75 m true width.
The immediate program on the S7-2 vein includes continued drifting along the vein at 585 m elevation through YM01, using a decline in YPD02 to explore the vein at the 510 m level.


3.4 Reconnaissance Exploration

Reconnaissance exploration outside of the SGX Area commenced during the summer of 2004. The program involved primarily surface mapping of old workings and follow-up of soil geochemical anomalies. This work resulted in identifying six additional Ag-Pb veins. These veins, with similar surface leaching characteristics to those at SGX, suggest deeper SGX-style high-grade Ag-Pb mineralization. The assay results for these six new veins are encouraging.

The DM vein, 4.2 km north-east of SGX tunnel CM103, has several north-easterly trending silicification and hematite alteration zones in addition so several small tunnels. Significant gold, silver and lead mineralized veins were found in the old workings. One of the veins is between 0.7 to 1.3 m wide and 400 m long. Surface chip samples and grab samples had encouraging results (0.8 m with 2.67 g/t Au, 26 g/t Ag and 0.14% Pb).

The 3 km long H15 vein is partially covered by a mining permit and is being mined by a local mining company. About half of the H15 vein is located within Silvercorp’s Ying permitting area. Chip samples and grab samples had encouraging results (1.0 m with 2.05 g/t Au, 12 g/t Ag and 0.36% Pb).

The Q33 vein, 2.9 km southeast of SGX tunnel CM103, extends 800 m north-south. Locals developed an undercut drift along the vein and intersected Ag-Pb mineralization over 0.3 m. A grab sample (712 g/t Ag, and 1.49% Pb) provided encouraging results.

The C32 vein, 7.6 km southeast of SGX tunnel CM103, extends about 800 m northeast. A small portion of the vein was mapped from a small tunnel in which the vein is from 0.35 to 0.60 m wide. Chip samples and grab samples had encouraging results (grab with 213 g/t Ag and 5.91% Pb). The main tunnel is now being extended 661 m with 42.5 m of raise and 311 m of undercut drift, but no significant mineralization has been yet intersected.

The W6 vein, approximately 9.5 km southeast of SGX tunnel CM103, is more than 700 m long and was previously mined by locals on three levels. Grab samples provided encouraging results (grab with 840 g/t Ag and 3.1% Pb). Recent work includes extending the main tunnel for 280.7 m with 616.7 m of undercut drifting. This tunnel discovered an extension of the northeast-trending, steeply southwest-dipping S18 vein continuous over 105 m and averaging 0.1 to 1.5 m thick. Some of the more encouraging results include 0.2 m of 9,525 g/t Ag, 13.53% Pb and 2.01% Zn, and 0.15 m of 5,306 g/t Ag, 10.38% Pb and 1.91% Zn.

The C29 vein, 6 km southeast of SGX tunnel CM103, is about 5 km long. Chip samples and grab samples had encouraging results (0.23 m with 0.07 g/t Au, 424 g/t Ag, >30.00% Pb and 2.68 % Zn). Recent enlargement of the tunnels (181.5 m), extension of the main tunnel for 60.7 m, undercut drifting for 662.8 m and raising for 33.8 m found three mineralized zones, the longest of which is about 20 m, 0.8 m wide and contains 1.5% Pb and 160 g/t Ag.


Expanding the Potential Resources of Massive Galena Sheets

On the Ying property, about 40 mineralized veins were identified by surface channel sampling and underground channel sampling with about 1 meter average width. Mineralization is hosted in a set of quartz-carbonate veins cross-cutting Archean aged felsic gneisses. In the western part of the project quartz-carbonate veins with silver-lead-zinc mineralization are manifested as 22 mapped vein-alteration zones. Veins S2, S7, and S8 are of particular interest due to the existence of previous local mining tunnels. It is expected that after the proposed 5,000m tunneling program is completed, more of these extremely high grade massive galena sheets, like those in S14, S16E and S16W veins, will be defined.


Direct Shipping of Ore & Custom Milling

1. Ore Sorting Facility

At the ore stockpile, mine employees manually sort out waste rock and direct-shipping lead ore from the run of mine ore. On a shipping campaign, the ore is loaded by front-end loader into 2-tonne tricycle trucks, which carry the ore along a one-lane, unpaved road from the mine to the barge ramp.
Currently, Found is constructing a conveyor-belt system for sorting waste rock and direct-shipping ore from the run of mine ore. The proposed site is located between Portals CM 103 and CM 105. Run of mine ore will be trucked and dumped into a bin fitted with a vibrating feeder. A wide flat belt located approximately 4 m above ground level has been specified for this application. This belt will be serviceable from either side and a partition to separate the discarded direct shipping ore from the discarded waste will be incorporated in the design. The plan is to have both the discarded high-grade ore and the waste removed from the facility with a front end loader. Material not discarded will be slated for milling and will discharge from the head pulley and loaded on tricycle trucks or moved to the by-product stockpile.
Items discussed on the preliminary design included the need to lengthen the tail pulley to minimize spillage and to facilitate clean up. The merits of a chute from the vibrating feeder to the sorting belt were debated as well. The removal of the chute would entail the installation of impact idlers at the receiving end of the belt.

2. Crushing facility for crushing direct shipping lead ore
A 900 m 2 steel-framed warehouse was built to house a 100 tpd crushing-plant. This facility is fully secured and it is used to store up to 1,500 tonnes of crushed direct shipping lead ore. The crushing equipment consists of two jaw crushers in closed circuit with a vibrating screen to produce a finished product that is minus 12 mm. This is the size that is specified by the lead smelter.

Crushed ore that has been bagged in 25 kg poly sacks is stored on one side of the building and the equipment is located on the other side. The crushed ore is hoisted from the screen undersize chute via a bucket elevator to a clam gate where bagging of the crushed product can take place. There are truck-sized doors located on either side of the building.

Coarse hand sorted ore is trucked to and dumped near the entrance of the primary jaw crusher chute. Ore is then either pushed with a loader or manually moved with shovels to feed into the primary jaw. Discharge from this jaw is then conveyed to the screen fitted with a 15 mm by 15 mm square wire mesh screen. Undersize reports to the feed of the bucket elevator while the oversize is diverted to a conveyor feeding the secondary jaw crusher. Discharge from the secondary jaw crusher falls onto the same conveyor as the primary jaw product for screening. The primary jaw is set at about 30 to 40 mm while the secondary is about 10 to 15mm.


5.3 By-Product Production and Sales From April 1, 2005 To February 28, 2006

The same milling contract was signed with two offsite custom mills: LZ Mill and LS Mill. See Figure 6.1 for location of these two custom mill sites. The milling fee is paid by the amount of tonnes processed. The fee for producing separate lead and zinc concentrates is US$18.50 per tonne and for a single concentrate of lead is US$13.50 per tonne.

The contracts stipulate that silver and lead recoveries be greater than 90% and zinc better than 80%. Lead assay in the lead concentrate must be greater than 50% with less than 8% Zn while zinc concentrate must contain more than 47% Zn and less than 2% Pb.
The contract also stipulates that mill samples be taken every two hours then composited into 8-hour shift samples. Three sets of shift composite assays are expected each operating day.
Neither custom mill is equipped with thickeners nor filters so concentrates are packaged in nylon bags after decanting and natural drying for shipment. Typical moisture content of the shipped concentrates ranges from 10 to 15%.

Lead concentrate and direct-shipping lead ore sales are contracted with Jiyuan Jinli Smelting Co. Ltd and Jiyuan Wanyang Smelting Co. Ltd. Both smelters are located in Jiyuan City of Henan Province, approximately 185 km northeast of the Ying Mine.

The payable prices for lead and silver are 76% and 75% of spot prices on the Shanghai Metal Exchange on the delivery date, respectively. If the gold content is greater than 2 g/t, it would be paid based on 50% of spot price on the Shanghai Metal Exchange. Lead concentrate and direct-shipping lead ore require lead to assay greater than 55%, and silver more than 1,500 g/t. The zinc assay must be less than 6%.

Zinc produced from the custom mill is sold to two different zinc smelters – Shaanxi Shangluo Zinc Co. Ltd and Jiyuan Yongxing Zinc Smelting Co. Ltd. The payable price is 70% of spot price on the Shanghai Metal Exchange on the delivery date. The smelters require the concentrate to contain more than 47% Zn and less than 2% Pb. There is no credit for silver in the zinc concentrate.

By-product ore production from exploration and development tunneling in the Ying Project for the eleven months ended February 28, 2006, is summarized as follows (in US dollars with an exchange rate of one US dollar = 8.1 RMB):

By-product Ore Production Tonnes
Direct-shipping lead ores 1,608
Low grade lead zinc ores 25,453
Low grade lead ores 7,498

Mill Throughput
Lead ores 5,480
Lead zinc ores 24,545

Concentrate Production
Lead concentrates 2,502
Zinc concentrates 1,263

By-product – Sales
Direct-shipping lead ore - 1,099.6 tonnes $894,011
Direct-shipping lead zinc ore - 11.8 tonnes $8,794
Lead concentrates - 2,463.17 tonnes $3,016,714
Zinc concentrates - 1,209.29 tonnes $655,966
Total US$4,575,485

All of the diluted by-product ore extracted by exploration and development tunneling was shipped to two offsite mills for custom milling. US$4,575,485 was recovered during April 30, 2005 to February 28, 2006 to pay for the costs of exploration and development, representing 78% of its total exploration and development costs during the period.


Mine Development and Mill construction

As listed in Table 6.1, capital costs for mine developments include shaft sinking, tunneling, mining and hauling equipment purchases and installation, power supplies and infrastructures, totalling US$5,819,878.

Table 6.1 : Capital Cost Estimates Of The Ying Project In US Dollars

Mine Development Costs US$
Shafts $1,520,700
Ventilation Shafts $269,388
460m Level Tunnel $741,638
410 Level Tunnel $705,163
Service Chambers $234,388
Mine Development $355,175
Mining Equipment $192,313
Hauling Equipment $521,188
Hoists, Winches, Pumps Etc. $666,025
Underground Power Supply Facilities $613,900
Subtotal $5,819,878

Mill Plant Costs
Crusher $152,775
Ball Mill And Flotation Cells $932,713
Filtration $522,050
Power Supply Facilities $653,063
Misc. $40,625
Tailings Dam $1,062,500
Subtotal US$3,363,725

Power Supply
Transform Station And Generators $1,121,500
Cables And Lighting $380,575
Subtotal $1,502,075

Water Treatment
Water Supply And Drainage $107,813
Environmental Project $232,463
Subtotal US$340,276

Public Facilities
Service Buildings $175,513
Communication $132,625
Fire Alarm System $48,438
Subtotal US$356,575

Infrastructure
Upgrading Mine Site Roads $205,875
Mill Roads $13,913
Ore Stockpiles And Concentrate Storage $12,838
Retaining Walls $234,000
Ditches $67,313
Sewage $13,113
Mine And Mill Site Transportation $259,000
Subtotal US$806,050

Other
Mine, Mill, And Tailings Land Leasing $158,375
Management Fees $152,525
Training $18,750
Equipment Testing $55,325
Tunnel Maintenance $68,288
Mining Engineering Planning $106,550
Geotechnical Study $65,575
Mine And Mill Design $60,000
Construction Inspection $75,000
Road Construction (Ying Site To Xiayu) $250,000
Ferry Terminal Upgrade $62,500
Ferry Building $250,000
Subtotal US$1,322,888

Total US$13,511,471


2. Mill construction

The proposed Xiashi mill for the Ying Mine is located at Xiashi Village, 17 km north-east of SGX. The Guxian Reservoir separates the mine and mill. Special barges will be designed and built to transport the ore 6 km over water. Trucks will then be used to haul the ore the remaining distance from the ferry terminal to the stockpile area of the new mill site. Before delivering the ore, the trucks will be weighed. Road upgrading of the truck route together with the installation of the truck scale is currently underway. In addition civil site works at the new mill site and road construction to the proposed tailings dam site are also underway.

The mill is designed for 600 tpd. There will be two parallel lines each capable of treating 300 tpd. The mill is designed to produce separate lead and zinc concentrates together with thickeners and filters for dewatering the lead and zinc concentrates unlike the custom mills. The main pieces of mill equipment are listed in Table.


Environmental , Operational Health and Safety

1.Environmental

An environmental permit has been issued to Found for the proposed mine and mill construction by Henan Provincial Environmental Protection Bureau. An approved Environmental Impact Assessment Study Report was prepared by Design Institute of Environment Protection of Luoyang City, dated January 20, 2006. The report detailed the current environmental condition at the site and established some basic socioeconomic and biophysical baseline data. The report concluded that current development mining had no significant adverse impacts.

Potential significant environmental impacts for the proposed mill and mine are likely to relate mostly to:

Waste mine water discharge: the mine discharge water is required to be settled and treated in the settling ponds to allow discharged water to contain less than 0.012 mg/l Pb and less than 1.02 mg/l Zn to satisfy “National Surface Water Quality Standard”, GB3838-2002II type water discharge standard;

Ensuring that waste rocks do not contain unacceptable levels of lead and zinc and piling of the waste rock is allowed;

Waste Water from the milling process shall be recycled and water shall be treated to satisfy “National Surface Water Quality Standard”, GB3838-2002II type water discharge standard;

Tailings from the milling process are required to be disposed behind the tailing dam. As most local people live above the tailing dam, tailings in the tailing dam have minimum impact on the local population’s drinking water;

Impact on the Gu-Xian Reservoir: the mine discharge water is required to be settled and treated in the settling ponds to allow discharged water to contain less than 0.012 mg/l Pb and less than 1.02 mg/l Zn to satisfy “National Surface Water Quality Standard”, GB3838-2002II type water discharge standard. Therefore, it will have minimum impact on the Gu-Xian Reservoir;

Public Opinion survey: as required by the Chinese government, a public opinion survey was performed with local affected communities. 98% of the surveyed were supportive of the project and only 2% were against the project.

The Henan Provincial Government has suggested an allocation of US$1.3 million for the mine and mill environmental program, such as re-establishing vegetation and reclamation; however, a bond is not required.

At the Ying Mine, a concrete pond was built to contain mine drainage from underground tunnels. This water is treated to satisfy the minimum requirements of water quality standard before being discharged to the environment. A number of trees were planted at the mine site as ongoing reclamation on disturbed land.


2. Operational Health and Safety

The Ying Mine has established comprehensive health and safety policies and procedures according to Chinese health and safety laws and regulations.
These safety policies and procedures include:

·Personal responsibilities of safe production, which covers safety responsibility for all management and staff;

·Safety inspection policies, which outline the procedures for daily, monthly and quarterly safety inspections;

·Safety training policies;

·Accident reporting policies;

·High-risk source monitoring policies;

·Correction policies of safety rule breach;

·Safety management policies for equipment;

·Safety Incentive and punishment policies;

·Operational health and safety record-filing policies;

·Safety fund collecting policies;

·Operating procedures for underground mining equipment;

The mine has an operational health and safety department which is staffed by three safety officers. The mandate of the department is to provide safety training, to enforce the operational health and safety policies and procedures, to make recommendations on mine safety issues, and to inspect the underground workings and explosive usages on a day-to-day basis. Each of the mining contractors appoints one to two safety officers of their own.
The mine maintains a safety committee of ten persons, headed by the general manager of Found. Other committee members consist of the deputy general manager of Henan Found, the mine manager, the safety department supervisor, the safety officer, and representatives of four mining contractors. The day-to-day operation of the committee is run by the mine’s safety department. The mine management and the safety officers are required to have valid mine safety training certificates issued by the Provincial Bureau of Safe Production and Inspection.
Insurance policies covering death and injury have been purchased for all of the staff and workers in the mine.
The mine and the mining contractors supply personal protective equipment (PPE) to their own staff or miners. The PPE includes hard hats, steel-toed boots, work gloves, face masks, and ear plugs.
The mine is planning to set up a mine rescue team in the near future. A medical clinic with a simple drugstore at the mine site, run by a private doctor, is designated to provide medical treatment to all staff and miners. An agreement was signed between a hospital in Luoning County and the mine to provide emergency services to the mine.
The mine maintains sound safety statistics. To date the mine hasn’t recorded any serious injury or death. The mine safety department reports the operational health and safety status on a weekly basis.
 
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