silver mine bfs update - sotkamo reports/160322_sotkamo... · 1.5 tmf area 11 1.6 base case 11 ......

CTS Engtec Oy | KOUVOLA ESPOO OULU ST. PETERSBURG [email protected] www.ctse.fi

Sotkamo Silver Oy Silver Mine Project Silver Mine BFS Update 18.03.2016 Kouvola, Finland

SilverMineBFSUpdate2016

SilverMineBFSUpdatereport Page2of63

TABLEOFCONTENT

1 SUMMARY 91.1 Permittingandschedule 91.2 MiningPlanandOreReserveestimate 91.3 Beneficiationprocess 101.4 XRTOreSorter,TekesprojectandOutotecO&Mserviceconcept 101.5 TMFarea 111.6 Basecase 11

1.6.1 Investmentcost 111.6.2 Operatingcost 121.6.3 Managementcase 12

1.7 Economicanalyses 131.7.1 Basecaseeconomicanalyses 131.7.2 Managementcaseeconomicanalyses 14

2 STUDIESBETWEENBFSREPORT2014ANDBFSUPDATE2016 152.1 SotkamoSilver,2014drillingcampaign 152.2 Sortertests 17

2.2.1 Oresampling 172.2.2 Samplepreparation 182.2.3 OresortingtestsatTomra 18

2.3 Miningplan 202.3.1 OpenpitMiningplan 202.3.2 UndergroundMine 22

2.4 Orereserveaudit 222.5 Sorter,TekesprojectandOutotecO&Mserviceconcept 252.6 TMF,countryrockandmarginaloreareasoilsurvey 252.7 PermittingstatusoftheSilverMineProject 25

3 BFSUPDATE 263.1 Mine 263.2 Crushing 273.3 OreSorter 28

3.3.1 Sorterlayoutandflowdiagram 293.3.2 Sorterintheproduction 29

3.4 Beneficiationprocess 313.4.1 Beneficiationprocessproducts 313.4.2 Processingplantinfrastructure 313.4.3 OutotecO&Mservice 33

3.5 ProjectInfrastructure 33



3.5.1 Generallayoutandareaworks 333.5.2 Modificationstobuildings 343.5.3 TailingsManagementFacility 34

4 MANAGEMENTCASE 354.1 Managementcasedisclaimer 354.2 Introduction 354.3 Geologicalstructure 354.4 Geophysicalsurveyandinterpretations 374.5 Modellingandestimates 39

4.5.1 Modelbelowpresentresourcefrom410downto1000meters 394.5.2 Modelfrom410downto1400meters 42

5 COSTUPDATE 445.1 Capitalcostupdate 44

5.1.1 Mine,crusherandsorter 455.1.2 Beneficiationplant 465.1.3 Infraandareaworks 485.1.4 Projectindirectcosts 485.1.5 Mineclosureandrehabilitation 495.1.6 Contingencyandescalation 49

5.2 Operationcostupdate 495.2.1 Mineoperationcosts 515.2.2 Electricityprice 515.2.3 Miscellaneouscost 515.2.4 Cashcost 525.2.5 Manningplan 53

5.3 Managementcase 53

6 ECONOMICANALYSIS 546.1 BaseCase,commoditypriceforecast 556.2 Projectsensitivities 586.3 Managementcase 58

7 BASECASEPROJECTSCHEDULE 62

8 CONCLUSIONSANDRECOMMENDATIONS 63



LISTOFTABLESTable1Summaryofinvestmentcost....................................................................................................11Table2Operationcostbreakdown.......................................................................................................12Table3Metalpricescenarios................................................................................................................13Table4Keyfinancialfiguresof6yearbasecase..................................................................................14Table5Keyfinancialfiguresof11yearmanagementcase..................................................................14Table6Sorterfeedcomposition...........................................................................................................18Table7OreSortertestresults(finesincluded).....................................................................................19Table8TotalOreproductionatSilverMine.........................................................................................20Table9Openpitminingplan................................................................................................................21Table10UndergroundMineminingplan.............................................................................................22Table11Mineralresourcesasof20thJan2016;derivedfrompublishedMineralResourceEstimate23Table12SotkamoSilverauditedOreReservesasof20thJan2016.....................................................24Table13Crushingandoresortingmassbalance..................................................................................30Table14AverageMetalinputofmillfeedandmetaloutputascommercialproductsduringthefirstsixproductionyears(drytonnes)..........................................................................................................31Table15MetalgradeestimatesofExplorationPotentialsolidbetweenlevels410and1000meters,derivedfromblockmodelbyconversionfactor(metalsg/t)................................................................40Table16EstimatesofHigh-GradeandsorterfeedmaterialsfromExplorationPotential;undergroundminingdilutingandorelossparametershavebeenapplied(metalsg/t)............................................40Table17HighgradeandsortedmaterialinExplorationpotential(metalsg/t)...................................41Table18Totalinvestmentcostbreakdown(1000€).............................................................................44Table19CostbreakdowntoInitialandSustaining(1000€)..................................................................45Table20Mineinvestmentcost(1000€)................................................................................................45Table21Processplantinvestmentcosts(1000€).................................................................................46Table22OthercommonSiteGeneralinvestmentcost(1000€)...........................................................48Table23Engineeringandprojectmanagement(site)costs(1000€)....................................................48Table24Operationcostcomparison(1000€).......................................................................................49Table25Annualoperatingcostperyear(1000€).................................................................................50Table26LOMoperationcostpercostitem(1000€)............................................................................50Table27SummaryofannualMiningoperatingcosts(1000€).............................................................51Table28Managementcasesustaininginvestments.............................................................................53Table29Grossrevenue,consensuspriceforecastBaseCase..............................................................55Table30CashFlowstatement..............................................................................................................56Table31Financialresultsbasedonforecastcommodityprices...........................................................57Table32ThesensitivityofBasecase....................................................................................................58Table33Theresultsofcashflowmodelling,Managementcase..........................................................59Table34ThesensitivityofManagementcase......................................................................................60Table35Managementcase,Cash-flowstatement...............................................................................61



LISTOFFIGURESFigure1Sampoanomalyandsomeofthedrillingintersectionsinthe2014campaign.......................16Figure2Samplingsiteintestminingtunnelat160level(circle)..........................................................17Figure3TomraXRTsorterusedinthesortingtest................................................................................18Figure4Theprincipleoftheoresorter.................................................................................................19Figure5SilverMineopenpitandblockmodeldisplayingAgcontent..................................................21Figure6Principaldrawingofundergroundcrusher..............................................................................26Figure7Crushing&Sortingtestflowflowsheetforproductionyears1&2.........................................27Figure8Undergroundcrushingplant’spreliminarylayout..................................................................28Figure9Preliminarycrushingflowsheetduringproductionyears3-6.................................................28Figure10Indicativeflowsheetoftheoresorting(Outotec)................................................................29Figure11OresortingperformanceasafunctionofAggrade(g/t)......................................................30Figure12Blaikenplantmills.................................................................................................................32Figure13Blaikenprocessingplantlongitudinalsection.......................................................................33Figure14Blaikenprocessplant.............................................................................................................34Figure15StructuralinterpretationofTipasjärviGreenstoneBeltbyTaipale(1983).LocationofSilverMinemarkedwithstar..........................................................................................................................36Figure16StructureofSilverMinearea................................................................................................37Figure17OriginalinterpretationoftheGTKgeophysicalSamposurveysbyNiskanen(2012)...........38Figure18ProjectiontowardsSE,TaivaljärviSAMPOresults1-1500ohm-m.Brownareadisplaysknownresource.....................................................................................................................................38Figure19Locationsofdrill-holescontainingore-gradematerialinExplorationPotentialmodelbelowknownresourcedownfromlevel410...................................................................................................39Figure20Blockmodelderivedfromdrill-holesbelowlevel410;longdrill-holedeviat-ingfromdirectionoflineationhasnotbeenused.Colorsymbols:white=undefined,cyan=0-70g/tAg;green70-135g/tAg;brown135-1000g/tAg..................................................................................................40Figure21Explorationpotentialmodelleddownto1000metersbasedongeophysicalsurvey.Diamond-drillingintersectionswithhighAg-contentsintoexplorationpotentialhavebeendisplayed................................................................................................................................................................42Figure22PossiblecontinuationoftheExplorationPotentialofsilvermineralizationdownto1400meters,basedoninterpretationofSAMPO-survey.Redareadisplaysexplorationpotentialdownto1000metersalongwithplannedtunnelcontinuation..........................................................................43Figure23Sotkamo-Blaikenlayout.........................................................................................................47Figure24Annualoperatingcostperminingtonnage...........................................................................50Figure25AnnualoperationalCashcost(othersalesthanAgusedascredit)......................................52Figure26AnnualOpexandEBITDAwithproductiondata...................................................................53Figure27Consensuspriceforecast.......................................................................................................55Figure28Managementcasepre-taxcashflowdiagram......................................................................60Figure29SIlverMineprejectMainschedule........................................................................................62



LISTOFABBREVIATIONS

€ euroa yearAg silverAu goldBFS BankableFeasibilityStudyCAPEX CapitalExpensesCE ConformitéEuropéenne,meaning"EuropeanConformity"EP EnvironmentalPermitJORCcode AustralasianCodeforReportingofExplorationresults,MineralResourcesand

OreReserveskt kilotonne,1000tonnesLOM LifeofMineMt Megaton,1000000tonnesMWh MegawatthourMoz MillionouncesOP OpenPitOPEX OperationalExpensesOz troyounce31,1gPb leadPRXF PortableX-RayFluorescenceanalyserROM RunofMinet metrictonneTMF TailingsManagementFacility(Tailingsandwatertreatmentbondarea)UG UndergroundZn zincallunitsaremetricunits,ifnotstatedotherwise



LISTOFREFERENCIS

• CTSEngtec,2014.BankableFeasibilityStudySotkamoSilverMine,137p.Accessibleonlineat:www.silver.fi

• Lindborg,T.,Papunen,H.,Parkkinen,J.,Tuokko,I.,2015.TheTaivaljärvi(SilverMine)• Ag-Au-ZnDepositinArchaeangreenstonebelt,EasternFinland.InMineraldepositsofFin-

land,editedbyW.Maier,R.Lahtinen,HughO`Brien.Elsevier.633-658• Niskanen,M.,2012.ElectromagneticSAMPOsoundingsatTaivaljärvi2011.GeologicalSurvey

ofFinland,ReportM185K2011.• Niskanen,M.,2013.ElectromagneticSAMPOsoundingsatTaivaljärvi2013.GeologicalSurvey

ofFinland,ReportM178K2012.• Parkkinen,J.,2013.SilverMineDepositatSotkamo:GeologicalModelofEMSampoSound-

ings.Accessibleonlineat:www.silver.fi.• Taipale,K.,1983.ThegeologyandgeochemistryoftheArchaeanKuhmogreenstone-granite

terrainintheTipasjärviarea,easternFinland.ActaUniversitatisOuluensis,Ser.A5,98p.• TechnicalreviewofErsmarkbergetplant(BlaikenMine),SotkamoSilverOy2015.• AuditreportoftheSotkamoSilverMineminingplanandOrereserves,OutotecOyj2016.



PREFACE

SotkamoSilvercommissionedCTSEngtecOyinSeptember2015toprepareaBank-ableFeasibilityStudyUpdatefortheSilverMineProject inSotkamomunicipalityFinland.TheOreReserveEstimate,thepitmodellingandthemineplanninghasbeencarriedoutbyMrJouniKankkunenMSc(Mining),MAusIMMforSotkamoSilver.MrPekkaLovén,MSc(Mining),MAusIMM(CP)ofOutotec(Finland)OyhasauditedtheOreReserveReportasacompetentperson.TheoverallprojectscopehasbeentoprovideupdatedCAPEX/OPEXestimateswiththe financialanalysisbasedon theupdatedOreReserveestimate inaccordancewiththeguidelinesoftheJORCCode(2012),themineevaluationandthequota-tionsofthemainequipment,theproductionandtheconstruction.CTSEngtecOyisaninternational,independentheavyindustryengineeringconsul-tancy.Mostconsultantsusedinthepreparationofthisreporthaveover20yearsofadequateprofessionalexperience.CTSpersonnelwhoareresponsibleforthisreporthavevisitedtheSilverMinesite.ThisBankableFeasibilityStudyupdatereportwasmadeinco-operationwithSot-kamoSilver’sprojectteamandCTSEngtec’sprojectteam.

InKouvola March18th,2016

__________________ PekkaVeisto ProjectDirector CTSEngtecOy



1 SUMMARY

ThisBFSUpdatereportdescribesthechangesintheSilverMineprojectsincetheBFS2014update.Inthischapterispresentedthesummaryofthefeasibilitystudyincludingtheupdatedandothercriticalinformation.

1.1 Permittingandschedule

SilverMineprojecthasallrequiredpermitstostarttheproject.MiningPermit(TheConcession),EnvironmentalPermit,MiningSafetyPermit,ChemicalProcessingandStoringpermitandBuildingpermitsforproductionfacilitiesareallvalid.

1.2 MiningPlanandOreReserveestimate

TheMiningPlanandTheOreReservewereupdatedwiththeimplementationofsensorbasedsortingintheproductionandbasedonthelatestinformationonthedepositstructure.MrJouniKankkunen,M.Sc.(Mining),MAusIMMhaspreparedtheMiningPlanandtheOreReserveEstimate,whichhasbeenauditedbyMrPekkaLovén,MAusIMM(CP),MSc(Mining)ofOutotec(Finland)OywhoisaCompetentPersoninaccord-ancewiththeJORCCode(2012).TheJORC(2012)compliantorereserve isplannedtobemined insixproductionyears.Fourmilliontonnesofmineralizedmaterialwillbeminedforthefurtherpro-cessing.Themillfeedconsistsof672ktofhighgradeoreand1772ktofpre-con-centrated ore. The pre-concentration will be done by sensor base sorting (XRTsorter).Approximately20%ofthemill feed isminedfromtheopenpitand80%fromtheundergroundmine.Theaveragesilvergradeofthemillfeedisestimatedtobe131g/tduringthefirstsixyearsofproduction.Theamountofcountryrockminingtotalsto2,8Mtandamountofrejectfromthesensorbasedsortingisestimatedtobeca1Mtduringthesesixproductionyears.Totalminingtonnesarelimitedto550ktduringthetwofirstproductionduetotheEnvironmentalPermit(EP)limitationandthenincreasedaftertheEPhasbeenup-dated.The audited Ore Reserve is derived fromMeasured and Indicated Mineral Re-sourcesandconsists2,76Mtoforewithaveragegradesof124g/tAg,0,41g/tAu,0,43%Pband0,90%Zn.Incomparisonwiththepreviousorereserveestimate,theaveragesilvercontentinOreReserveincreasedby22%asoretonnagedecreasedby17%.



ThehighermetalgradeandlowertonnageofmillfeedcomparedtotheBFS2014feedisduetominingofhighgradeoresduringtwofirstproductionyearsandim-plementationofsensorbasedoresorterintheSilverMineprocess.Installingoresorterundergroundwillalsolowerthehaulingcostsinundergroundminingsincesorterrejectcanbetakenstraighttobackfilling.

1.3 Beneficiationprocess

ThebeneficiationprocessisCrushing-Milling-Flotation-Dewateringduringthefirsttwoyears.Fromthethirdyearonwards,Crusherisintegratedwithsensorbasedoresorterthatisaddedtotheprocess.Integratedcrusher-sorterwillbeinstalledundergroundanditwillreducethehaulingcostsintheundergroundmining.Theprocessremainsotherwiseunchanged.Inadditiontoimplementingoresorter,themillingcircuithasbeenmodifiedsinceBFS2014andinsteadofrodandballmill,onlyballmillwithgreatercapacityisap-pliedintheprocess.Themill feedinthetwofirstproductionyears isplannedtobe350kt/aandit’llincreaseupto450kt/ainthethirdproductionyear.TheaverageAgPb–concentrateoutputduringthefirst6productionyearsisestimatedtobe2500tandaverageZnAg–concentrateoutput6700t(drytonnes).Silverproductionisestimatedtobeca1,5Moz/atotalling9,25Mozinthesixpro-ductionyearsandgoldproductionca5koz/atotalling28,6koz insixproductionyears.Estimatedzincproductionis3,6t/aandleadproduction1,5t/a.Zinctotallingto21,7ktandleadto9,2ktrespectivelyduringthesixproductionyears.Allesti-matesaredrytonnes.

1.4 XRTOreSorter,TekesprojectandOutotecO&Mserviceconcept

Sensorbasedoresortingisimplementedinthenewproductionplanfromthethirdyearonwards.Thesorterincreasesthemetalgradeanddecreasesthemassofthemillfeed.Thisleadstolowerproductioncostsperproducedsilverounce.Thebenefitsoftheoresortingarebasedonthepilotrunmadein2015.Metalgradeincrease of 60% and 40%mass reject is assumed in the production plan. Theamountofunsortablefinefraction(particlessmallerthan10mm)isassumedtobe20%.ThesorterwillbetestedintheTekesprojectduringthefirsttwoproductionyearsonthegroundandfromthethirdproductionyearit’llbeimplementedinthepro-ductionplan.Asthirdyearonwards,thesorterwillbelocatedundergroundwithintegratedcrushingplant.



OtherdevelopmenttargetsoftheTekesprojectareindustrialinternetimplemen-tation,remoteprocesscontrolandmodularmachinery.SotkamoSilverOyhasnegotiatedanoperationandmaintenancecontractwithOu-totecOyjtooptimizethestartoftheproduction.Thecontractcoverscommission-ing,rampupphaseandfirstoperatingyearofthebeneficiationplant.

1.5 TMFarea

TheTMF(TailingsManagementFacility)areaconstructionplanshaveprogressedandasaresultofthem,thetailingspondbuildingschedulehasbeenupdated;pre-sentplan istoconstructthewhole28hectarepond inonestagebeforestartofproduction. The costs of the construction have been updatedwith the tendersbasedonthenewgeotechnicaldesign.

1.6 Basecase

1.6.1 Investmentcost

Theupdatedinitialinvestmentcostoftheprojectisprojectedtobe29,6M€andtotalinvestmentcost40,6M€.ThecorrespondingfiguresintheBFS2014were23,9and34,2M€respectively.Thetotalinvestmentinthisupdateis6,4M€higherthaninBFS2014(Table1).Table1Summaryofinvestmentcost

Costbreakdown BFS2014 BFSUpdateMine,crusherandsorter 4463 12983Beneficiationplant 18855 12721Sitegeneral 6400 4958Indirectandownercosts 2825 4902Contingency 1657 5000TOTAL 34200 40564

Higher investmentcosts than inBFS2014derivemainly fromhigher investmentcostsinopenpitandundergroundmine.Heavycountryrockremovalcampaigninopenpitenablesminingofhighgradeoreduringtwofirstyears.Investmentsre-latedtoinstallingcrushing&sortingunit intotheundergroundmineinthethirdproductionyearlowerssignificantlyundergroundorehaulingandproductionunitcosts.



Thebeneficiationplantinvestmentis6,1M€lowerthaninBFS2014sincemostofthemachineryisalreadyacquiredwithBlaikenplantpurchase.Implementingse-condhandmachineryofBlaikenplantistakenintoaccountashighercontingency.

1.6.2 Operatingcost

AsSilverMine’sLOMmetaloutputhasincreasedandwhiletheproductionplanhasbeencompressedfrom8to6years,theproductionunitcostshavedecreased.LOMoperatingcostshavedecreasedfrom123M€inBFS2014to110M€inthisstudy.Duringthefirsttwoyearstheoperatingcostsare14M€onaverageandfromtheyear3onwards,operatingcostsareat20M€annuallevel.Theincreaseismainlyduetosignificantlyhighertonnagesinundergroundmining.OperationcostspertonofconcentrateandtonofmillfeedareillustratedintheTable2(asaverage/LOM).Table2OperationcostbreakdownOperationcost BFSupdate

1000€€/t

concentrate€/tofOremillfeed

Mine,crushingandsorter 10962 1182 26,72Beneficiation 6238 678 14,93Sitegeneralandadmin 1152 126 2,84

Total 18352 1985€/t 44,88

LOMaverageCashcostisestimatedtobe6,63$/Oz.TheAll-inCashCost(AISC)isestimatedtobeintheManagementcase8,68$/Oz.

1.6.3 Managementcase

TheManagementcase isbasedontheexpectationsof theExplorationPotentialbelow the current reserves. This is based on geological and geophysical infor-mation.However,italsoincludesalargeamountofuncertaintiesandcanonlybeseenasanuncertainprojectionofthefuture.TheExplorationPotentialismodelleddownto1000metersandbasedongeophys-icalanddrillholedata.It’sestimatedtobe10,3milliontonnesat71,5g/tAg.Ten-tativegradeestimateandtheminingplanhavebeencreatedbyusingexistingdrillholedata.AroughestimateisthatfromthisExplorationPotentialareaamountofmillfeedcouldtotallybe2,25milliontonneswithagradeof144g/tAg.Thiswouldaddanotherfiveproductionyearsintotheminingplan,ontopofexistingorere-serves.



During themanagement caseproductionyears (after year5), allore isquarriedfromtheUGmineandcrushed&sortedunderground.Themillfeedisplannedtobe450kt/a.During the fiveproductionyears, it’sapproximated that total silverproductionwillbe9,5Mozandtotalgoldproduction22koz.Totalproductionofzinc isapproximatedtobe18,85ktand leadrespectivelyca8ktduringthe fiveproductionyearsinthemanagementcase.

1.7 Economicanalyses

BothBaseCaseandManagementCaseeconomicanalysesarepresented.Sensitiv-ityanalysesareconductedtodifferentpricescenarios.

1.7.1 Basecaseeconomicanalyses

Intheeconomicanalysesoftheproject,theassumptionsintheTable3aremade.SensitivityoftheSilverMineprojectagainstmetalpricesisanalysedbythreedif-ferentscenarios,“ConsensusPrice”,“LowPrice”and“HighPrice”.Table3Metalpricescenarios

SILVERMINE-AVG(2016-2022)/case-MiningPlan160107 ConsensusPrice LowPrice HighPriceUSD/EUR 0,92 0,92 0,92Ag$/oz 14,9-20 12,7 28,0Au$/oz 1191-1256 1200 1500Zn$/t 1256-2067 1785 2800Pb$/t 1865-2072 1757 2500

Intheconsensuspricescenario,consensusmetalpriceforecastisapplied.Inthelowpricescenario,silverpriceof12,7$/ozandwinter2015-16levelothermetalpricesareassumed.Inthehighpricescenario,highpricesformetalsareassumed.Theresultsofthesensitivityanalysesarepresentedinthetablebelow.Asarefer-ence,correspondingresultsoftheBFS2014arepresentednexttotheresultsofthescenariosdepictedabove.



Table4Keyfinancialfiguresof6yearbasecase

Theconsensusmetalpriceforecastscenario’skeyfiguresare36%IRR,€50millionNPV(@5%)andpaybacktimeof2,7years.

1.7.2 Managementcaseeconomicanalyses

Same fourmetal price scenarios are applied in themanagement caseeconomicanalyses.Theresultsofthesensitivityanalysesarepresentedinthetablebelow.

Table5Keyfinancialfiguresof11yearmanagementcase

Currency:1000€DFS2014/3 LowPrice ConsensusPrice HighPrice

Ag=15,5$/OZ SilverMine SilverMine SilverMineMillFeed(tonnes) 3335439 2443314 2443314 2443314

LOM(years) 8 6 6 6k€ k€ k€ k€

Revenue 155906 153748 204263 292644Capex(LOM) 34201 40564 40564 40564InitialCapex 23903 29629 29629 29629Opex(LOM) 123476 110114 110114 110114

EBITDA 32429 44085 94600 182981EBITDAfirst4years 28427 30489 59714 120996NPV(5%beforetax) 392 8883 50008 124382

IRR(beforetax) 9,0% 11,2% 36,4% 85,4%Payback - 5,1 2,7 1,2

BaseCase--6YearsOperationBaseCase:LOM=MineralReserves

Currency:1000€LowPrice ConsensusPrice HighPriceSilverMine SilverMine SilverMine

MillFeed(tonnes) 4693314 4693314 4693314LOM(years) 11 11 11

k€ k€ K€Revenue 301926 418183 582797

Capex(LOM) 44090 44090 44090InitialCapex 29669 29669 29669Opex(LOM) 223925 223925 223925

EBITDA 78002 194258 358873EBITDAfirst4years 27823 57048 118330NPV(5%beforetax) 22432 103210 223129

IRR(beforetax) 15,0% 40,0% 85,6%Payback 5,9 3,0 1,3

ManagementViewCase--11YearsOperation:LOM=Mineralreserves+5yearsfrom

ExplorationPotential



2 STUDIESBETWEENBFSREPORT2014ANDBFSUPDATE2016

Significantupdatesbetween2014and2016springhasbeenexecutedtominingandproductionplan,changesarebasedontheresultsfromtheinvestigationsaftertheBFS2014.Changesareduetothedrillingcampaign2014,thesortertestsin2015andtheupdatedmineplanwhichtakesintoaccountthenewdrillingresultsandtheinfluenceofthesorteruseinminingandprocessing.Thedrillingcampaignin2014ispresentedinchapter2.1.Testswiththeoresorterarepresentedinchapter2.2andtheup-datedmineplaninchapter2.3.ThenewMiningPlanandtheOreReserveEstimatehavebeenpreparedinaccordancewiththeguidelinesoftheJORCCode(2012).TheMiningPlanauditbyOutotec(Finland)Oyjhasbeenreviewedinchapter2.4.Fromthethirdproductionyearonwardsundergroundcrushingandoresortingareimplementedintotheproductionplan.Oresortingispresentedinthechapter2.2.TMF,countryrockandmarginaloreareasoilsurveyinchapter2.6andthepermit-tingstatusofSilverMinearepresentedinchapter2.7.Inadditiontothepreviousupdates,theexplorationpotentialinthedeposit’sdepthcontinuationhasbeenstudied.Management’sviewofthispotentialispresentedinthechapter2.5.

2.1 SotkamoSilver,2014drillingcampaign

SotkamoSilverconductedadiamond-drillingcampaignin2014attheSilverMinetofurtherstudytheore-formation,explorethedepth-extensionandtodrillholesfor newelectricity-cablesbetween themine-levels.All drillingwasundergrounddrilling.Altogether13holestotal2502metersweredrilled.DrillingwascarriedoutwithNQequipment,whichgivesa50,7mmcoreindiameter.Themine’selectricitywasimprovedbyinstallingtwonewcablesinseparateholesbetween levels+84,+175,+255and+330.Thisenabledtheconstructionofnewpowerstationsateachlevel.HolesTU6andTU7weredrilledtoconfirmcontinuityofthedeposit.ThefourholesTU11,TU20,TU18andTU76weredrilledtoinvestigatethelowerpartofthede-positandthecontinuitydownwards.Onelonghole,TU1wasdrilledtoresearchthegeophysicalanomalythatextendssouthfromthemaindeposit(figure1).Drill-holeTU1wasdrilledfromthedeepestpartoftheproduction-tunneltoclarifyreasonsofthegeophysicalanomalydefinedbyearlierSampo-surveys.



Inthedepthof611-615meterthesemi-massivesulfide-zonewasintersectedcon-taining9%sulfurand1,1%zinc.Inthedepthof808-810metersthereisa2meterintersectioncontaining152g/tsilverand0,6g/tgold.Theseobservationsare200-300meters apart from earlier known ore-depositmodel. This indicates awide-spreadoccurrenceofore-formingprocessesandhighorepotentialofthearea.HolesTU6andTU7weredrilledtoconfirmthecontinuityofthemineralresource.Inbothholes,silver-gradesabovecut-offvalueof50g/tsilverwasfound.HolesTU11,TU18,TU20andTU76weredrilledinthelowerpartoftheknowndepositandbelowit.HolesTU11,TU18andTU20intersectthesilvermineralization,whichexceedthecut-off-valueandconfirmthecontinuityofthedepositandwillincreasethemineral-resources.HoleTU76 isoneofbestholesdrilled in thispartofdeposit,about100metersbelowearlierobservations.Thecorecontainsa17,5meterintersectionwith266g/tsilverand0,73g/tgold.Insidethisintersectionthebestpartcontains411g/tsilverand1,2g/tgoldatalengthof7,65meters.Theactualwidthoftheintersectedlayerisabout5metersastheintersectionisoblique.Drillingresultsconfirmthedeepextensionofthesilverdepositandthatoreformingprocesseshavebeenextensive.Totaldrillingintheareacomprisesmorethan500drill-holes and over 60 km drilling. Silver deposit database consists of 410 drill-holes,totally57km.

Figure1Sampoanomalyandsomeofthedrillingintersectionsinthe2014campaign



2.2 Sortertests

Thesorter testswereconductedduring the summer2015.Sorter tests includedsamplingattheSilverMine,samplepreparationattheGTKMinteklabandsortertestsatTomrasiteinGermany.

2.2.1 Oresampling

TheorewasfirstsampledfromtesttunnelminedintoorezoneofSilverMine(fig-ure2).Totally2200kgofsamplesweretakenfromthestope.Samplingwasplannedonhistoricalanalyticsdonefromthequarryandgradecon-trolwas supportedwithaPXRF. The targetwas toproduce samples that corre-spondedwiththegradesinthetestquarrytomimicthereal-lifecircumstancesasorterdevicewouldhavetohandle.Sampleswereclassifiedasfootwalllow-graderock,lowgradeore(30ppmAg)andhighgrade(100ppmAg)ore.

Figure2Samplingsiteintestminingtunnelat160level(circle)



2.2.2 Samplepreparation

Aftersampling,thesamplesweretakentoGTKMinteklabinOutokumpu.Allthesampleswereweighedandcrushedtomaximumøof75mm.Aftercrushing,thesampleswereweighedagain.Eachsamplewasthensieved into0-10,10-30,30-70mmfractions.Itwasdecidedtochoosethe30-70mmfractionforthesortertestatTomrasiteinGermany.Twosamples,high(yellow)andaverage(green)silvercontentwerepre-paredforsortertest(Table6).ApressreleaseofDetailedstudyofsamplingandsamplepreparationispresentedinthecompanywww-pageswww.silver.fi. Table6Sorterfeedcomposition

2.2.3 OresortingtestsatTomra

AttheTomrasiteinGermany,thesampleswerefurthermixedtoproduceaho-mogenousfeedforthesorter.ThetestwasexecutedwithaTomrasortershownintheFigure3andtheprincipleofthesorterisshowninfigure4.

Figure3TomraXRTsorterusedinthesortingtest



Figure4Theprincipleoftheoresorter

TheXRTsorterseparationisbasedonatomicdensityofthematerial.Silver,silverbearingandotherminerals’atomicdensitiesinthetestedsamplesarehigherthanthegangueandisthusdetectedandseparatedtosorterproduct.Becausethex-rayspassthroughtheparticlesandareameasureoftheattenuationthroughtheentirerock,XRTseparationisalmostindependentofsurfacequalityofthematerialor itsmoisture.Surfacepropertiessuchascolorandtextureand/orcontaminationssuchasdirt,dust,paint,etc.aremainlyirrelevanttothedetection.Theusedsorterinthistestworkhasaworkingwidthof600mmandwasrunatabeltspeedof2,7m/s.Thefeedrateforeachsortingtestiscalculatedforastandardunitof1200mmsortingwidth.Theresultsofthetestsshowsilvercontentincreaseof93%insortedproductoflowgradefeed(60Agg/t)and40%insortedproductofaveragefeed(139Agg/t).It shouldbenoted thatalmost60%of thematerial from the lowgrade feed isejectedtosorterrejectwhichreducesthemillfeedmasssignificantly(Table7).Table7OreSortertestresults(finesincluded)



2.3 Miningplan

Theresultsofsortingtestshavebeentakenintoaccountwhilepreparingthenewmineplanandtheorereserveestimate.Themineplanisbasedonhigh-gradingofthebestoresduringthefirstproductionyearsandonusingtheXRTsortertoim-provethefeedgradeduringthelaterproductionyears.Thisscheduleallowstheuseofsorterrejectasback-fillmaterialinfirstlyminedopenpitpartsandunder-groundstopes.TheNewMiningplanwasconductedbyJouniKankkunenMSc(Mining),MAusIMM.MiningconsistsofOpenpitandundergroundmining.Thesummaryoftheopenpitandtheundergroundminingisshownintable8.Table8TotalOreproductionatSilverMine

TotalOreProduction

Year OreMining MillFeed SorterReject MillFeedGradeg/t

Tonnes Tonnes Tonnes Ag Au Pb Zn

0

1 391662 321511 - 144,44 0,40 3644 6661

2 451267 350191 - 141,63 0,36 3606 6702

3 808456 450000 228863 126,73 0,44 4742 10157

4 833552 450000 253958 125,02 0,45 4868 10499

5 832781 450101 255430 125,09 0,45 4879 10520

6 731792 421512 310280 128,80 0,49 5454 11599

Total 4049509 2443314 1048531 130,95 0,43 4532 9356

Thetotalmillfeedofthefirst6productionyears,basedonorereserves,is2.4Mtonnes.Totalmining is4.0Mtonnes.Thesorterreject isusedasaminebackfillmaterialandthe lowgradeore fromtheopenpitwillbestockpiled forpossiblelatersorting.

2.3.1 OpenpitMiningplan

Openpitoreminingwilllast5years.460000tofcountryrockwillbeminedduringtheconstructionyear(year0inthetable9).



Table9Openpitminingplan

Year OreMining MillFeed CountryRock OreGradeg/t Tonnes Tonnes Tonnes Ag Au Pb Zn0 460000 1 161662 91511 155000 126,94 0,42 3261 56222 203267 102191 80000 117,91 0,26 3147 57983 234594 105000 1000000 112,61 0,33 2940 68864 234594 105000 800000 112,61 0,33 2940 68865 230351 103101 339808 112,61 0,33 2940 6886

Total 1064466 506802 2834808 Totalmillfeedfromtheopenpitis0,5Mtduringthefirst5productionyearswhiletotaloreminingis1Mt.Theunsortedlowgradeoreservesassafetystockandcanbefedtothesorterwhennecessary;itwillgivemorethan300ktofadditionalmillfeedwhichisnotinvolvedintoproductionfiguresotherthanmimingcosts.Thefinaldepthoftheopenpitwillbe80meters.TheopenpitHighGradeoreblockmodelispresentedinthefigure5.HighGradeoreisminedbyselectiveminingin-cludinggradeanalysisofblast-holes.Basedonanalysisanexcavationmapispre-paredforselectiveloadingoforeintotrucks(separationofhighandlowgrade).

Figure5SilverMineopenpitandblockmodeldisplayingAgcontent



2.3.2 UndergroundMine

Theundergroundminingplanispresentedintable10.Table10UndergroundMineminingplan

Undergroundmine Year OreMining MillFeed Sorter

rejectMillFeedGradeg/t Drifting Drifting

Tonnes Tonnes Tonnes Ag Au Pb Zn Meters Tonnes0 1300 910001 230000 230000 - 151,41 0,40 3796 7075 200 140002 248000 248000 - 151,41 0,40 3796 7075 500 350003 573863 345000 228863 131,03 0,48 5291 11152 3400 2380004 598958 345000 253958 128,80 0,49 5454 11599 3200 2240005 602430 347000 255430 128,80 0,49 5454 11599 3200 2240006 731792 421512 310280 128,80 0,49 5454 11599 3200 224000

Total 2985043 1936512 1048531 15000 1050000

Drifting is started during the construction year (year 0). High grade stopes areminedselectivelyduringthetwofirstproductionyears.Fromtheproductionyear3onwards,anoresorterisimplemented.Sorterrejectanddriftingrockfromdrift-ingisusedasabackfillingmaterial.

.2.4 Orereserveaudit

MrJouniKankkunen,M.Sc.(Mining),MAusIMMhaspreparedthemineplanandtheOreReserveEstimatehasbeenauditedbyMrPekkaLovén,MSc(Mining),MAu-sIMM(CP)ofOutotec(Finland)OywhoisaCompetentPersoninaccordancewiththeJORCCode(2012).Theauditreportispresentedinwww-pageswww.silver.fi.TheOreReserveestimateisderivedfromtheMeasuredandIndicatedMineralRe-sources.SincethelastpublishedMineralResourceEstimate(28.1.2014)theresourceblock-modelhasbeenupdatedtoincorporatethelatestunderstandingonthede-positstructureandtobetterservetheneedsofthemineplanningwhensensorbasedsortingisusedintheprocess.AsummaryoftheMineralResources,reportedwith30g/tAgcutoffandwhichhavebeenusedasthebasefortheOreReserveestimate,isshowninTable11.



Table11Mineralresourcesasof20thJan2016;derivedfrompublishedMineralResourceEsti-mate

Theore reserves (Table 12below)havebeenestimated according toAustralianJORCcode(2012).Thefollowingkeyfactorswereusedinthelatestorereserveestimation:

• Cut-off grade:Undergroundmining: stope cutoff 30€/t (NSR) for sorterfeed,62€/tfordirectmillfeed,openpitmining30€/t(NSR)fordirectmillfeed

• MiningDilution:Undergroundmining:15%,openpitmining:10%• MiningRecoveryofplannedstopes:90%.• Metallurgicalrecoveriestoconcentrates:Ag=88%;Au=81%;Pb=77%;

Zn=89%• MetalPrices:Ag=14,7Us$/oz;Au=1120Us$/oz;Pb=1690Us$/t;Zn

=1790Us$/t• Thesmeltertermsarebasedonthezincconcentratesalesagreementbetween

SotkamoSilverOyandBolidencommercialABandtheleadsilverconcentrateLetterofIntentbetweenSotkamoSilverOyandBerzeliusStollbergGmbH.

• Millfeedrate:350000t/aproductionyear1-2,450000t/ayear3onwards• PreconcentratingbyXRTsortingisappliedfromtheyear3onwards.To

maintainconstantmillfeedratetheundergroundminingratevariesaccordingtotheminedgradepeakingto833000t/a(openpitandundergroundcom-bined).ThesortingperformanceisbasedontestworkdonebyTomrausingap-proximately3000kgtestsample.



Table12SotkamoSilverauditedOreReservesasof20thJan2016

Theminedesign,miningscheduleandOreReserveEstimatehavebeenpre-paredinaccordancewiththeguidelinesoftheJORCCode(2012).Miningstartssimultaneously fromtheopenpitandfromtheundergroundmine. The scheduling strategy has been that the high grade undergroundstopes(tonnagevalue>62€/t)andtheopenpitoreisminedandfedtothemillduringthefirst3to4years.ThemarginalgradematerialfromtheopenpitwillbestockpiledandsortedformillfeedusingXRTsorterduringthelastyearofoperation.Inordertomaintainthemillfeedheadgrade,theminedmaterial fromundergroundminewillbesortedusingXRToresortersfromtheyear3onwards.TheXRTsortingrequirescrushingandscreeningtoparti-clesizebetween10mmand80mm.Thefines(20%)willbefedtothemillandtheoversizematerialwill be re-crushed.Basedon the testworkdone themasspulltothefeedisabout45%andoreloss12%.Theopenpitoperationisaconventionaldrillandblast,loadandhaulminingwithouttechnicalorschedulingrisks.Themainundergroundminingmethodiswellprovenbenchandfillminingmethod.Theannualmining rate fromundergroundstopesvariesbetween230000t/aand730000t/adependingontheoregradeandtheamountofsortingdone.Tomaintainthehighendproductionratesthelateraldevelop-mentneededisquitechallenging.Toachievethehighestannualdevelopmentmetersof3400m,requiresmorethanoneroundpershift.Aworkscheduleof5daysperweek–2shiftsadayroasterwillbeused.This isdoablebutrequires good work scheduling and resource planning so that there areenoughdevelopmentheadingsavailableallthetimes.About57%ofthesilverintheMeasuredandIndicatedMineralclassesisin-sidetheOreReserve.



ComparisontothepreviousOreReserveestimates(January2014)showsthedecreaseofthetonnageby17%andincreaseofAggradeby22%.ThisisduetotherevisedMineralResourceblockmodelandtheapplicationXRTsorting.

2.5 Sorter,TekesprojectandOutotecO&Mserviceconcept

Duringthefirsttwoyearsofproduction,oresortingwillbetestedon-siteatSilverMineaspartoftheTekesproject.Industrialinternetimplementation,remotepro-cesscontrolandmodularmachinerywillbedevelopedduringtheTekesproject.Asthirdyearonwards,thesorterwillbelocatedundergroundwithintegratedcrushingplant.Sensorbasedoresortingisimplementedinthenewproductionplanfromthethirdyearonwards.Thesorterincreasesthemetalcontentandde-creasesthemassofthemillfeed.Thisleadstolowerproductioncostsperproducedsilverounce.Thebenefitsoftheoresortingarebasedonthepilotrunmadein2015.Metalcon-tent increaseof60%and40%massrejectareassumedintheproductionplan.Formationofunsortablefinefraction(particlessmallerthan10mm)isassumedtobe20%.SotkamoSilverOyhasnegotiatedanoperationandmaintenancecontractwithOutotecOyjtooptimizethestartoftheproduction.Thecontractcoverscommis-sioning,rampupphaseandfirstoperatingyearofthebeneficiationplant.

2.6 TMF,countryrockandmarginaloreareasoilsurvey

TailingsManagementFacility(TMF),countryrock&marginaloreareasoilsurveyon-sitesamplingwasexecutedinJuly-August2014.Morethan140samplesweretaken.ThesurveywasexecutedbyPöyryandtheresultswereincludedintheTMF&marginaloreareageotechnicalplanning.

2.7 PermittingstatusoftheSilverMineProject

AfterBFS2014,SilverMineprojectwasgrantedchemicalpermit inMarch2015.ThepermitisgrantedbyTukes(TheFinnishSafetyandChemicalAgency)andit’sconcerningprocessingandstoringofchemicalsusedinthebeneficiationprocess.



3 BFSUPDATE

InthischapterthechangesandupdatestooriginalBFS2014conceptisdescribed.

3.1 Mine

MiningschedulevariesfromtheBFS2014Study,ashighgradestopesintheunder-groundmineandhighgradeorefromtheopenpitareminedduringfirsttwopro-ductionyears.MostofthetechnicaldetailsconcerningtheminedesigningremainaspresentedintheBFS2014.Miningandhaulingisoperatedbycontractors.MinemanagementwillbeprovidedbySotkamoSilver.Thedifferencesinthemineproductionstartinthethirdproductionyearwhenun-derground crusher andanore sorter are implemented.Aspresented in theoresorterstudysection,sortingwillupgradethesilvercontentinthemillfeed.Inad-ditiontothis,haulingcostsarereducedsinceit’snotneededtohaulallthecrushedoreuptothesurfacebutthesorterrejectcanbetakenstraighttobackfilling.Theprincipleofundergroundcrushing,sortingandhaulingisdepictedintheFigure6.Thecrushercanbefedwithwheelloader,truckorvibratingfeederfromorepass.BlackarrowsintheFigure6presenttheoreflowandbluearrowsairflow.

Figure6Principaldrawingofundergroundcrusher



3.2 Crushing

Thetechnicaldesigncriteriaofthecrushingplant,beltconveyors,screens,dustandnoisemitigationsystemsisequaltotheoneinBFS2014.Sincethesortingistestedduringthefirsttwoyearsandmovedundergroundduringthethirdproductionyear,thecrushinglayoutismodifiedfromtheBFS2014.Thepreliminarycrushingflow-sheetforproductionyears1and2ofthecrusherispresentedintheFigure7.How-ever,duringthesortertests,thesetupwillbedifferentandduringtheteststheoptimalcrushing&sortinglayoutandflowdiagramwillbedetermined.

AsanadjustmenttothelayoutofBFS2014,thesecondarycrusher(conecrusher)islocatedinsidetheprocessingplant.Thisisdonetosecurethemillfeedduringtheweekendswhenprimarycrusherisnotrunning.Twosilosarelocatedalsoinsidetheprocessingplant.This isduetoavoid the freezingof the finematerialwhenstockpiledoutside.Thecoarsematerial(30-70mm)isstoredintotheoutdoorstor-age.

Figure7Crushing&Sortingtestflowflowsheetforproductionyears1&2

Duringthethirdproductionyear,crushingismovedunderground.Preliminaryde-signoftheundergroundcrushingplantispresentedintheFigure8.



Figure8Undergroundcrushingplant’spreliminarylayout

Preliminarycrushing flowsheetof theundergroundmine ispresented intheFigure9.ThecrushingandsortingsolutionswillbetestedintheTekesprojectduring the first twoproductionyearsand the finaldesignof theundergroundcrusherwillbedecidedaccordingtotheresultsintheTekesproject.Alsofinalamountofthesilosandlocationswillbedecidedthen.

Figure9Preliminarycrushingflowsheetduringproductionyears3-6

3.3 OreSorter

Fromthethirdproductionyearonwards,theminedandcrushedoreisfedfirsttotheXRToresorterwheretheoreisupgradedbyseparatingthehighermetalcon-tentmaterialtothemillfeedandthelowermetalcontentmaterialtothesorterreject.



Thesorterwillbeplacedundergroundwithacrushingstationwhichtogetherwillformapre-concentratingunit.Thebenefitsoforesortingwillbemetalcontentup-gradeinthemillfeedandlowerhaulingandprocessingcosts.Sincethesorterrejectisseparatedfromthemillfeedundergroundandtakenstraighttobackfilling,lessmaterialisneededtobehauledfromtheundergroundtunnel.

3.3.1 Sorterlayoutandflowdiagram

IntheSilverMineproduction,oreiscrushedandscreenedto10-30and30-70frac-tionsandfedthroughthesorter.Thefinefraction(0-10mm)cannotbesortedandit’sfedstraighttothemill.PreliminarylayoutoftheundergroundsorterisdepictedintheFigure10.

Figure10Indicativeflowsheetoftheoresorting(Outotec)

3.3.2 Sorterintheproduction

AccordingtothetestsmadeinJuly2015,itwasfoundoutthatthesortereffectivityreduceswhensilvergrade increases.When theeffectofore sorter to the silvergradeintheproductionwascalculated,theassumptionsforsorterrejectandsorterlossintheFigure10wereapplied.



Figure11OresortingperformanceasafunctionofAggrade(g/t)Whentheeffectoforesortingwasimplementedintotheproductionplan,followingfactorswereapplied:finefractionof20%(particlesize<10mm),TheparametersofXRTsortingareonaverageforreject55%andore loss12%.Thismeansthatsortingequipmentcanseparate55%oftheganguerockincludedintheminedorewhileitloses12%ofmetalsintothesortingreject(ie.internalrecoveryofsortingequipmentis88%).ThematerialbalanceofcrushingandsortingispresentedintheTable13Table13Crushingandoresortingmassbalance

SecondaryCrusher MillfeedOPore UGore OPore UGore OPore UGore OPore UGore OPore UGore Process ingplant (0-~15mm)

0 - - - - - - - - -

1 91511 230000 18302 46000 - - - - 257209 321511

2 102191 248000 20438 49600 - - - - 280152 350191

3 105000 573863 21000 114773 - 459090 - 228863 - 230227 314227 450000

4 105000 598958 21000 119792 - 479167 - 253958 - 225208 309208 450000

5 103101 602430 20620 120486 - 481944 - 255430 - 226514 308995 450101

6 - 731792 - 146358 - 585433 - 310280 - 275154 275154 421512

Tota l 506802 2985043 101360 597009 - 2005634 - 1048531 - 957103 1744945 2443314

PrimaryCrusherfeed Fines(0-10mm) Sorterfeed(10-70mm) SorterWaste SorterProduct

Intheproductioncalculationsca60%metalcontentupgradesintheUGmillfeedare achieved by sorting and ca 40m-% of themined undergroundmine ore isejectedfromthemillfeedassorterreject.



3.4 Beneficiationprocess

Thebeneficiationprocesshasbeenmodifiedbyremovingtherodmillfromthepro-cessandincreasingthecapacityoftheballmill.Asaresultofthis,thetargetmillfeedparticlesizehasdecreasedfromP8025mmtoP8015mm.It’sbeenstudiedthattheselectedballmill’scapacityissufficienttoprocessthemillfeedof450kt/a.Themillingefficiencywillbecontrolledbymotors’frequencyconvertersandtheballloadinglevel.IntheBFS2014dewateringplan,alltheconcentratesarefilteredwithajointpres-surefilter.ThisisupdatedasaccordingtothenewplanAgPbandZnAg–concen-tratesarefilteredwithajointpressurefilterandpyriteconcentratewithaseparatediscfilter.

3.4.1 Beneficiationprocessproducts

As themetal contentof themill feed isupgraded, themetaloutputof thepro-cessingplantisupgradedaswell.TheaverageAgAuPb–concentrateoutputduringthefirst6productionyearsisestimatedtobe2500tandaverageZnAg–concen-trateoutput6700t(drytonnes).Thecommercialconcentrates’metalcontentsandrecoveriesarepresentedintheTable14belowTable14AverageMetalinputofmillfeedandmetaloutputascommercialproductsduringthefirstsixproductionyears(drytonnes)

Millfeedoz/a oz/a Recovery-% oz/a Recovery-% oz/a Recovery-%

Ag 1714469 1425051 83,1 117133 6,8 1542184 90,0Au 5711 4775 83,6 - 0,0 4775 83,6

t/a t/a Recovery-% t/a Recovery-% t/a Recovery-%Zn 3901 - - 3627 92,4 3627 92,4Pb 1876 1528 81,5 0 0 1528 81,5

Zn-AgPb TotalPb-AgPbConc.

3.4.2 Processingplantinfrastructure

Theprocessingplant infrastructurehasbeenmodifiedsincethepurchaseof theBlaikenprocessingplant inSweden.According to thestudiesmade,mostof theprocessingmachineryandequipmentofBlaikenplantcanbeutilizedintheSilverMine beneficiation process. During spring 2015most of themotors and pumpsweretestedonsiteatBlaikenMine.ApressreleaseoftheBlaikenprocessingplantmachinery and equipment technical review is presented in the companywww-pageswww.silver.fi.



Figure12BlaikenplantmillsTheBlaikenprocessplantinfrastructureissimilartotheoneplannedtoSotkamo.Inthemilling,theBlaikenplanthasbesidestheballmillalsoanautogenousmillwhichisnotneededinSotkamo.However,theballmill’scapacityinBlaikenplantissufficienttoreplacebothrodmillandballmill thatwereoriginallyplannedtoSotkamoPlant.TwosilosthatarelocatedoutsidetheplantintheBlaikenprocessplant,willbeinstalledinsidetheprocessingplantinSotkamoasillustratedinFigure13.Thiseliminatespossiblefreezingproblemoffeedmaterialstotheprocess.



Figure13BlaikenprocessingplantlongitudinalsectionThe froth flotation infrastructure of Blaiken is suitable to the planned Sotkamoplant.However,theBlaikenplanthastwofrothflotationcircuitscomparedtothethreeplannedinSotkamoandthusadditionalthree5m3flotationcellsareneededtobeacquiredtocomplementtheSilverMinefrothflotationcircuit.BlaikenplantwaterremovalisdesignedfortwoconcentratesandbecauseofthisanadditionalthickeneranddiscfilterareneededtobeacquiredtocomplementtheSilverMinewaterremoval. Blaikenplant’sbuilding’ssteelstructurewillbealsotransferredtoSotkamobeforethe start of the production. The Blaiken plant’s building is bigger than the oneplanned toSotkamoand itwillallowthe fineoresilos tobe installed inside theprocessingbuilding.ThisispresentedintheFigure13above.Detailedplansofin-stallationandprocessflowsheetmustbepreparedbeforeconstruction.

3.4.3 OutotecO&Mservice

SotkamoSilverOyhasnegotiatedanoperationandmaintenancecontract(O&M)withOutotecOyj.Thisservicecoversthecommissioningandramp-upphaseandthefirstoperationyeartoensurethebestpossiblestart-upfortheprocess.Ou-totec’sscopeincludesfollowingservices:

- thebeneficiationplantoperationandmaintenance- pilotingandoperatingmodularflotationprocess- pilotingandoperatingthepreconcentration/Sorterprocess.

3.5 ProjectInfrastructure

In this chapterarepresented thechanges toproject infrastructure (i.e. civil andconstructionworks).

3.5.1 Generallayoutandareaworks

Nosignificantchangeshavebeenmadetothegenerallayout.



3.5.2 Modificationstobuildings

TheBlaikenprocessplantbuildinghasalsospacesforofficesandsocialpremises,drillcorelaboratoryandworkshop,sothesebuildingshavebeenremovedfromthelayoutandscope.

Figure14Blaikenprocessplant

3.5.3 TailingsManagementFacility

In BFS 2014 it was presented that the tailings pondwill be constructed in twophases.Sincethattailingspondconstructingschedulewasmodifiedas28hectaretailingspondwillbeconstructedinasinglephase.TMFareaanddamstructuredesignhasbeenupdatedandaccordingtothedesignbyPöyryEnvironment,thecompactionlayerinthedamswillbeconstructedofben-tonitematandstructurelayerswhilethebedlayerofthepondwillbeconstructedofin-situnaturalpeat,constructedpeatlayerandbentonitemat.Theupstreamslopeofthedamwillbe1:3,5.TheslopeisgentlerthanexpectedintheBFS2014andit’sduethetechnicalpropertiesofthebentonitematcompactionlayerstructure.ThecostsoftheTMFareaconstructionwereupdatedwithtendersbasedonupdatedTMFdesign.



4 MANAGEMENTCASE

4.1 Managementcasedisclaimer

Itshouldbenotedthatforwardlookingstatementsinthemanagementcaseesti-mateinvolveknownandunknownrisksanduncertaintiesthatcouldcauseactualresultsandfutureeventstodiffermateriallyfromthoseanticipated.Suchrisksanduncertainties couldprevent the forward looking statements in themanagementcasefromcomingtofruition.

4.2 Introduction

TheManagementcase isbasedontheexpectationsof theexplorationpotentialbelowthecurrentknownresources.Thisroughestimationispreparedonthebasisofgeologicalandgeophysicalinformation.However,italsoincludesalargeamountofuncertaintiesandcanonlybeseenasanuncertainprojectionofthefuture.Theexplorationpotentialpresentedhasbeenmodelledfromresultsofanelectro-magneticSAMPOgeophysical-surveybyGTKin2011and2012.Existingdiamond-drillingswithhighmetal-contentson500and550meterlevelssupportthisexplo-ration-potentialmodel.ThegeophysicalanomalygivenbySAMPO-surveycoincideswithregionallineation,whichisthedominanttectonicfeatureinthewholeTipas-järviGreenstoneBelt.Theconductivezone,extensionoftheDeposit,canbecalledExplorationTarget(JORC2012)becauseitformsaliableextensiontotheTaivaljärviDepositastotheshapeandpositionandinaccordancetoknowngeologicalstruc-tures(Parkkinen,2013).Moreover,thezonehasbeenpenetratedbyseveraldrillholescontainingTaivaljärvitypesilveroreintersections.Atentativeminingplanandtonnageandgrade-estimatesforthisexplorationpo-tentialhavebeencreatedbySotkamoSilver’smanagement.Plansandestimateshave been made using structural interpretations and existing drill-hole analyzedata.AmanagementestimateisthattheanticipateddepthextensionoftheSilverdeposit couldaddanother fiveproductionyears into themining-plan,on topofexistingmineral-reserves.Thiswillbeverifiedbyresearchworkduringthesixfirstproductionyears.

4.3 Geologicalstructure

GeologicalandtectonicstructureoftheSilverMineareaandTipasjärviGreenstoneBelt(TGB)hasbeenpreparedbyKalleTaipale(1983)andmorepresentlybyJyrkiParkkinen(2012,2013).Figure15belowmadebyTaipalepresentsoverallstructureoftheBelt,regionallineationisillustratedbyarrowL2.



Figure15StructuralinterpretationofTipasjärviGreenstoneBeltbyTaipale(1983).LocationofSilverMinemarkedwithstarBasedonthedetailedtectonicobservationsobtainedfromtheminedeclinePark-kinen(2010,2012)interpretedthestructureoftheTaivaljärvisequence.Thestruc-turalanalysisindicatedthattheoredepositfollowsthedirectionoflineation,andthatdirectionhasmajorpotentialtofindextensionofthedeposit.Structuralanal-ysiscanbefoundin“ExplorationpotentialcombinedwiththeSotkamoSilverMine”byPapunenandParkkinen(2014);appendixtoSotkamoSilverBFS2014CTSEng-tec.Besideslineationalsolarge-scalefoldingandrepeatingofrockunitsinpresenterosionlevelisobvious.ThisisillustratedintheFigure15.



Figure16StructureofSilverMineareaRegionallineationisdominantfeaturecontrollingalsosilvermineralization.Yellowzonesrepresentkyanite-bearinglayerswhichareimportantmarkerhorizonsinsideacidvolcanicunits.Greencolorrepresentsmaficandultramaficvolcanicunits(Fig-ure16).FigureispreparedforSotkamoSilverbyJyrkiParkkinen.

4.4 Geophysicalsurveyandinterpretations

Geophysicaldeep-penetratingSampo-survey indicates that themineralized zonecontinuesdownto1,5oreventwokilometers,asillustratedinFigures17and18.Thesurveywasconductedduring2012and2013byGTK(Niskanen,2013)andin-terpretationofthesurveyresultsandsynthesisofgeophysicsandstructuralobser-vationsofthedepthextensionwaspreparedbyJyrkiParkkinen(2013).



Figure17OriginalinterpretationoftheGTKgeophysicalSamposurveysbyNiskanen(2012)

Figure18ProjectiontowardsSE,TaivaljärviSAMPOresults1-1500ohm-m.Brownareadis-playsknownresourceDetailsoftheSampointerpretationispresentedinthereportofParkkinen(2013).



TheprocedureandresultshavebeendescribedinmoredetailinoriginalreportsbyNiskanen (2013) and Parkkinen (2012, 2013) and in “Exploration potential com-binedwiththeSotkamoSilverMine”byPapunenandParkkinen(2014);appendixtoSotkamoSilverBFS2014byCTSEngtec.

4.5 Modellingandestimates

4.5.1 Modelbelowpresentresourcefrom410downto1000meters

TheExplorationPotentialpresentedintheFigure19beenmodelledfromresultsoftheelectromagnetic SAMPOgeophysical surveydown to1000meters. Likede-scribedaboveregionallineationcoincideswiththegeophysicalanomaly.Existingdiamond-drillingswithhighmetal-contentson500and550meter levelssupportthisExplorationPotential.Amountofdrill-holeswithoregradeintersectionstotalsto17,threeofthem(TU-76,R-106andR-110)arepresentedinFigure21below.

Figure19Locationsofdrill-holescontainingore-gradematerialinExplorationPotentialmodelbelowknownresourcedownfromlevel410

ExplorationpotentialsolidiscontinuationoforelayersAandBofpresentminingplan,intheupperpartthissolidhasbeenintersectedby17drill-holes,lowerparthasbeendefinedbySAMPOgeophysics.Blockmodelfromlevel410downto700representstheupperpartofthisExplora-tionPotentialsolid;tonnageofthisblockmodelis2,49MtwhileExplorationPoten-tialsolid’stonnageisestimatedat10,3Mt.InthisManagementcasemetalgrade



estimatesoftheblockmodelhavebeenusedforthewholeExplorationPotentialmodeldownto1000meters.

Figure20Blockmodelderivedfromdrill-holesbelowlevel410;longdrill-holedeviat-ingfromdirectionoflineationhasnotbeenused.Colorsymbols:white=undefined,cyan=0-70g/tAg;green70-135g/tAg;brown135-1000g/tAg.Table15MetalgradeestimatesofExplorationPotentialsolidbetweenlevels410and1000meters,derivedfromblockmodelbyconversionfactor(metalsg/t).Ag(g/t) Tonnes Ag Au Pb Zn0,0->30 683267 18,4 0,1 675 196830->50 1068655 39,9 0,1 1358 429150->65 4450217 57,7 0,1 2890 477165->130 2589343 88,1 0,2 2729 5778130->5000 687903 207,0 0,6 5546 11243GrandTotal 10300000 71,7 0,1 2720 5322Fortwocategories(shadowedintheTable15),Ag65-130g/tandAg>150g/thasbeenappliedundergroundminingparameters:miningdilution15%andore loss10%.Byusingthesefactors,estimatedamountofHigh-Gradematerialis712ktat182g/tAgandmaterialtobeup-gradedbyoresortingis2,68Milliontonnesat78,9g/tAg.Allmetalsing/t.TheresultsarepresentedinTable16below.Table16EstimatesofHigh-GradeandsorterfeedmaterialsfromExplorationPotential;un-dergroundminingdilutingandorelossparametershavebeenapplied(metalsg/t).



Diluted Ag Au Pb Zn 2679970t 78,9 0,2 2481 5358 => 1481638t711980t 182,3 0,5 4930 10110 => 768362t3391950t => 2250000t

Accordingtoresultsreceivedfromsortingtests,sorterfeed2,68Milliontonnesisdivided into product and reject; amount of sorting product 55% is 1,48Milliontonnesat127g/tAg.Productincludesfinesderivedinsorting,basedonsortingtestsamountoffinesis20%offeedamount.Sorterrejecttonnageisestimatedtobe1,18Milliontonnes,Ag–content17g/t.Table17showstheHighGradeandsortedmaterialtotalsto2,25Milliontonnesat144,5g/tAg.Goldcontentisestimatedat0,38g/t;zincat0,9%andleadat0,43%.Table17HighgradeandsortedmaterialinExplorationpotential(metalsg/t)

Oretonnes/grade Ag Au Pb Zn1481638t 127,37 0,32 4005 8649768362t 177,55 0,51 4930 98552250000t 144,51 0,38 4321 9061Sorterreject 1179187t /5Years Theestimatedtotalmill-feedtonnagefromExplorationPotentialarea(Figure21)wouldaddadditional fiveproductionyears intothemining-planoncapacity450kt/a,ontopofexistingmineralreserves.



Figure21Explorationpotentialmodelleddownto1000metersbasedongeophysicalsurvey.Diamond-drillingintersectionswithhighAg-contentsintoexplorationpotentialhavebeendis-played.

4.5.2 Modelfrom410downto1400meters

BasedonSAMPO-surveythepotentialdepthcontinuationofthesilvermineraliza-tionismodelleddownto1400meters,thismodelisestimatedtocontain33,5Mil-liontonneofmineralizedmaterialbetweenlevels410and1400meters(Figure22).



Figure22PossiblecontinuationoftheExplorationPotentialofsilvermineralizationdownto1400meters,basedoninterpretationofSAMPO-survey.Redareadisplaysexplorationpoten-tialdownto1000metersalongwithplannedtunnelcontinuation.

JouniKankkunenMSc(Mining),MAusIMM,andIlkkaTuokko,MSc(Geology),MAu-sIMM,QP(QualifiedPerson)byFennscandianReviewBoardhavecompiledandre-viewedtheplansandestimatedthefiguresfortheManagementview.IlkkaTuokkoisoneoftheManagementteamofSotkamoSilverandisnotanindependentcon-sultant.



5 COSTUPDATE

AfterBFS2014,updatedtenderswererequestedformining,civilworks,OutotecO&MservicesandalsoforBlaikenplantrelocation(dismantling,refurbishing,trans-porting,reconstructionatSilverMine).Forother itemscorresponding indexwasusedasacostcalculationfactor.Inthecostupdateprocess,themodificationstolayoutandprocesswastakenintoaccount.

5.1 Capitalcostupdate

In theBFS2014the total investmentcostofSilverMineprojectwas34,201M€(statesupportexcluded),whilethisBFSupdateshowsthatthetotalinvestmentcosthasincreasedto40,564M€.Theinitialinvestmentcosthasincreasedfrom23,903M€to29,631M€.ThetotalinvestmentcostbreakdownisshowninTable18belowandmoredetailedinvestmentcostbreakdowndividedininitialandsustainingpre-sentedintable19forthisBFSupdate.Table18Totalinvestmentcostbreakdown(1000€)Costbreakdown BFS2014 BFSUpdateMine,crusherandsorter 4463 12983Beneficiationplant 18855 12721Sitegeneral 6400 4958Indirectandownercosts 2825 4902Contingency 1657 5000TOTAL 34200 40564ThedifferencestoBFS2014areexplainedmoredetailedineachdisciplinechapterbelow.TheprojectedsellingpriceoftheexcessiveequipmentinBlaiken(notneededintheSilverMineProject)isnotincludedinthetotalinvestmentcost.Thisisestimatedtobe920k€anditisincludedincashflowcalculations.DuetotheuncertainlyofcostrelatedtoBlaikenremovalandundergroundcrushing/sortingstationconstruction,thecontingencyisincreasedfrom1,657M€to5,0M€.InBFS2014thestatesupportwasestimatedtobe1,851M€.InthisBFSupdatethishasbeenestimatedasfinancialitemtotalvalueof1,5M€.Thetotalupdatedin-vestmentcostisdividedintoInitialandsustainingintheTable19.



Table19CostbreakdowntoInitialandSustaining(1000€)CostbreakdownBFSUpdate Initial SustainingMine,crusherandsorter 5402 7581Beneficiation 12368 353Sitegeneral,infraandarea 4958 -Ownercosts 4902 -Contingency 2000 3000TOTAL 29629 10935

5.1.1 Mine,crusherandsorter

During2015andspring2016whentheminingplanwasupdated,itwasdecidedtoinstallthecrusherandsorterintoundergroundfacilitieslevel-350maftersecondoperationyear.Thecomparisoncalculationsshowthatthiswasmoreeconomicalthaninstallingcrusherandsorterongroundlevelandhauleverytonneoforetogroundlevelandthensorterrejecttoundergroundminebackfill.InvestmentstoOpenpitundUndergroundminesarepresentedinTable20.Crusherpriceisbasedontenderaskedfromtwovendors.Thecrusherspacecostisbasedoncontractorpricing.SortercostisincludedinOutotecO&Mservicespackage(opex).Table20Mineinvestmentcost(1000€)

Item Year 1000€Overburdenandcountryrockremoval(OP) 0 3226Ventilationshaft 2 249UGcrusherandsorterspaceandsilos 2 691UGcrusherandsiloequipment 3/4 2753UGbackfillingshaft 2 249OPextension,gountryrockremoval 3-5 3639Otherinvestmentcost 0 2176TOTAL 12983InBFS2014,correspondinginvestmentswere3,7M€.Higherinvestmentsincom-parisontoBFS2014enableloweroperatingcosts.Openpitoreiscrushedbycontractormobilecrusher(opex)aspresentedinBFS2014.Themainreasonsforincreaseofmineinvestmentcostsarethestartofun-dergroundcrushingandsortingafterthesecondoperationyearasownoperationandhigherinvestmentstoopenpitdevelopment.TheOPextensioncostswerecalculatedinopexinBFS2014.



BlaikenplantorestorageandsilosareinstalledtoSotkamoaswithnecessarycon-veyors.

5.1.2 Beneficiationplant

During 2015 tenders to uninstall Blaiken plant and machinery in Sweden andtransport and re-install them to Sotkamowere requested from contractors. TocomplementthedesignedSilverMineprocess,onefilter,onethickenerandthreeflotationcellsareneededtobeacquiredontopoftheBlaikenplantmachineryandequipment.Theprocessplantarea’sinvestmentcostscanbedividedtofollowingsubsectorsasshowninTable21below.Table21Processplantinvestmentcosts(1000€)Position BFS2014 BFSUpdateCivilandconstruction 2253 3884Machineryandequipment 9866 4541Piping 2286 970Electricalandautomation 5385 2846HVAC 440 480Total 18432 12721Itisestimatedthattotal1,0M€mustbeusedtoBlaikenequipmentmaintenanceandrepair.RepairsandmaintenancearecarriedoutinKainuuareaworkshops.TheinvestmentcostofbeneficiationplanthasdecreasedduetotheBlaikenplantpurchase.TwocontractorssubmittedtenderstoexecureBlaikenplantdismantlingandinstallationinSotkamo.Basedonthetenders,contractorcost is7,9M€andtotal10,215M€intheinvestmentcalculationisreservedforBlaikendismantling,refurbishing, transportationandreinstallation (Blaikenrelated investmentcost+contingencyincluded).ThepreliminaryBlaikenplant layoutfittedtoSilverMineprocess ispresentedinFigure23.



Figure23Sotkamo-Blaikenlayout



5.1.3 Infraandareaworks

Procurement and construction cost of yards, roads, dams, water managementpipesandpumps,areaelectricitydistribution,arealightingandconstructionphasefacilitiesareincludedinthissector.ThecostsarecomparedtotheBFS2014figuresintable22.Table22OthercommonSiteGeneralinvestmentcost(1000€)Position BFS2014 BFSUpdateProcessplantareaworksandroads 1171 1256Office 437 -TMFarea 2950 2088Areaelectricitydistributionandautomation 1190 1127Areapumpsandpiping 316 316HVAC 336 171Total 6400 4958InBFS2014thebuildingswererentalfacilitiesandinthisBFSUpdateBlaikenpro-cessplantsteelframeandcladdingandsomeauxiliaryitemsareinstalledtoSot-kamo.AreaandTMFcivilworkscostsarebasedonupdatedcontractorunitcostandupdatedplans.TheTMFisconstructedinonephaseandthislowerstheinvest-mentcostover250k€comparedtoBFS2014.TheBlaikenbuildinghasofficeinte-gratedintheprocessplant.

5.1.4 Projectindirectcosts

TheSotkamoSilverMineprojectindirectcostsincludingengineering,projectman-agement,testingandcommissioning,start-upandtrainingcostsarepresentedinTable23below.Thesecostsareestimatedasfactoredfromestimatedinvestmentcosts.Table23Engineeringandprojectmanagement(site)costs(1000€)

Item Total Minearea 964 Process 2506 Sitegeneral 1432 TOTAL 4902



IntheBFS2014aboveindirectcostswereestimatedtobeintotal2825k€.TheincreasecomesfromSotkamoSilverOyownpersonnel,whichwerenotcalculatedinBFS2014.SotkamoSilverOy’sownpersonnelisworkingintheprojectduringtheinvestmentperiodincommissioning,start-upandtraining.

5.1.5 Mineclosureandrehabilitation

Allmineclosureandarearehabilitationcostsarecalculatedinopexasclosurebond.

5.1.6 Contingencyandescalation

BecausethisupdateisbasedonusingBlaikenplantequipmentandundergroundcrushing/sorting thecontingency iscalculatedas5,0M€,comparedtoBFS2014valueof1,7M€.Twomillionisestimatedtobeusedintheinvestmentyear(0),twomillioninthefirstoperationyear,andrest1M€isrelatedtobuildingtheunder-groundfacilitiesforcrusherandsorterduringoperationyears2to4.Noescalationiscalculated.

5.2 Operationcostupdate

TheSotkamoSilverMineaverageannualoperationcosthasincreasedfromtheBFS2014by713k€/atothelevelof18352k€(average6years).Mostoftheincreasecomesfromundergroundmining.ThecomparisonofoperatingcostsbetweenBFS2014andthisBFSUpdateisshowninTable24.TheunitcostsarecalculatedfortheBFSUpdatefiguresastotaloperationcostpertonneofproducedconcentratepertonneofmillfeed(average/aLOM).Table24Operationcostcomparison(1000€)

Operationcost BFS

2014BFSupdate1000€

€/tconcentrate

€/tofOremillfeed

Mine,crushingandsorter 11202 10962 1182 26,72Beneficiation 4399 6238 678 14,93Sitegeneralandadmin 2038 1152 126 2,84

Total 17639 18352 1985€/t 44,88TheunitpricesareBFSUpdatefigures€/tforbothconcentrateproducttonnes.TheBFS2014wasbasedon8yearsLOM.ThisBFSUpdateisbasedon6yearsLOM.Duethis,thevariablecostrelatedtoannualROMandmillfeedhasincreased.Theprocess plant maintenance and spare part cost have increased due the use ofBlaikenplantequipment.TheannualoperatingcostsareshowninTable25andinFigure24andLOMoperatingcostsperiteminTable26.



Figure24AnnualoperatingcostperminingtonnageTable25Annualoperatingcostperyear(1000€)

1 2 3 4 5 6GeneralAdmin 570 570 570 570 570 570Openpit 621 621 518 518 509 -UG 4224 4445 12488 13033 13383 14900BeneficiationPlant 9352 5361 5685 5403 5403 5285Sitegeneral 606 603 576 576 576 576Total 15373 12089 19837 20101 20441 21334

Table26LOMoperationcostpercostitem(1000€)

SumLOMMinecontractwork 62158Personnel 15836Electricityandheat 13303Maintenanceandspares 6562Consumables 5082OutotecO&Mservices 5625Miscellaneous 1548Total(1000€) 110114

0

200 000

400 000

600 000

800 000

1 000 000

1 200 000

0

5000

10000

15000

20000

25000

0 1 2 3 4 5 6

Miningt1000€ Operationcost

Sitegenral&admin Mine Beneficiation Totalmining(opex)



Outotec’sO&Mservicesareusedonlyontheproductionyear1andduringstart-upandcommissioningphase.Outotec’sO&Mservicesarethekeyreasonforthehighoperationcostinyear1.

5.2.1 Mineoperationcosts

SotkamoSilverMineopenpitandundergroundmineareoperatedasoutsourcedservice.Thecontractorunitpriceswereupdatedinautumn2015.Annualrockpro-cessingcostsarepresentedinTable27below(forOPyear2averageandforUGyear4average).Table27SummaryofannualMiningoperatingcosts(1000€)Item BFSUpdate €/tnOPminingore 449 2,21OPminingcountry 136 1,70UGminingore 4923 8,22UGdrifting 3544 15,82UGsortedorehauling 1244 4,90Crushing 969 1,16UGfilling 938 2,42Sorter 599 1,00

Total(LOMoreandLOM/tofore) 62158 15,35NotethatfromY2halfofdriftingtonnesaredirectlydumpedtoUGfillandfromY4all.UGfillingshaftwillbeoperationalinthebeginningofY2.

5.2.2 Electricityprice

IntheBFS2014anelectricitypriceof43€/MWhplusfixedtransferfeeof40,7k€/awasusedinthecalculations.IntheBFSUpdate,theinformationforprojectedpurchasepriceintheelectricitymarketandupdatedlocaltransferpriceoftheserviceproviderwereusedtoesti-matetheelectricitypriceperMWhduringtheconstructionphaseandproductionofSilverMine.Theupdatedelectricityprice(includingpurchaseandtransferprice)is43,13€/MWhandfixedtransferfee33,0k€/a.

5.2.3 Miscellaneouscost

Nochangeshavebeenmadetoothermiscellaneouscost.



5.2.4 Cashcost

TheoperationCashcostwascalculatedtofindouttheminimumSilverpricewhenoperationcashflowispositive.Ifincomesfromby-products(Pb,Zn,Au)areusedasacredittheoperationalpro-ductioncashcostwillgodowntolevel6,63$/Oz(LOMaverage).TheannualproductionCashcostispresentedinFigure25withtheannualminingfromOPandUG.

Figure25AnnualoperationalCashcost(othersalesthanAgusedascredit)TheCashcostincludesthesiteoperationcost,producttransportationandsmeltercostandrevenuefromothermetalsisusedascredit.IntheAISC(AllinSustainingCashcost)iscalculated:

- allsiteoperationcost- productsmelterandtransportationcost- SotkamoSilverOyandABmanagementcost- sustaininginvestmentcost- explorationcost- revenuefromotherthansilverisusedascredit.

TheAISCLOMaverageis8,68$/oz.

-

2,00

4,00

6,00

8,00

10,00

12,00

-

200 000

400 000

600 000

800 000

1 000 000

1 200 000

2017 2018 2019 2020 2021 2022

$/OzMiningt Cashcostandmining

UGore UGdevelopment

OPmining,ore OPcountryrock

Cashcost$/Oz AISC(AllinSustainingCost)



5.2.5 Manningplan

SincemineitselfisoperatedbycontractorthetotalownworkforceofSotkamoSil-verMineis17workers(inbeneficiation),12geo-andothertechnicians,geologistandengineersand3managers.OutotecO&Mserviceincludetotal15to20people.

5.3 Managementcase

InthemanagementcasetheLOMwillincreasefrom6toelevenyears.Basedontheminingplan,followingadditionalsustaininginvestments(Table28)areneededaftertheinvestmenttoBaseCasefacilities.Table28Managementcasesustaininginvestments

Managementcasesustaininginvestment(1000€) Year 1000€Ventilationshaftextensionfrom-350to-700mlevel 7 249Extensionofhaulingtunnel3000m 7…9 3237TOTAL 3486ThetotalinvestmentinManagementcaseisestimatedtobe44,09M€.ThemanagementcaseOpexandEBITDAarepresentedinFigure26withthepro-ductionparameters(summaryofcolumn=annualtotalrevenue).

Figure26AnnualOpexandEBITDAwithproductiondata

0100 000200 000300 000400 000500 000600 000700 000800 000

05 000

10 00015 00020 00025 00030 00035 00040 00045 000

1 2 3 4 5 6 7 8 9 10 11

Production

1000€

Year

Ebitdaandproduction

OpexMine OpexPlant Opecothers EBITDA

OPmining UGmining Millfeed



6 ECONOMICANALYSIS

AsapartofthisBFSUpdate,CTShasupdatedtheprojectfinancialmodelinordertoderivepre-financeNetPresentValue(NPV).During2015andspring2016fourdifferentprojectconceptswasevaluatedoneco-nomicalbasis.Thebestcaseincludes:

- Blaikenplant- OutotecO&Mserviceandmodularflotationconceptand- Tekessupportformodularbeneficiationplantandsorting.

CTShasusedMS-Excelbasedinvestmentcalculationsoftware(InvestforExcel)forfinancialcalculations.Themodelisbasedonupdatedminingplanforopenpitandundergroundmine.TheOPorewillgodirectlytomillaftermobilecrusherwhileUGoreiscrushedandsorted inundergroundfacilitiesfromyear3.Becauseof limitationfromEnviron-mentalpermitthemillfeedis320…350ktinthefirsttwooperationyearsandafterupdatedEPisgrantedthemillfeedwillberaisedto450kt.All capitalandoperatingexpenditures isdenominated inEuros.Thevaluation ismadeinEurosandfixed$/€exchangerateof0,92isusedinallscenarios.NPVandotherfinancialfactorspresentedherearebeforetaxandpre-financebasisandassumeadiscountfactorof5%.Also8%calculationwasdoneaswellaspost-taxcalculations.Allfiguresarepresentedinrealterms.Decliningdepreciation7%hasbeenusedforbuildings.Straight-linedepreciationhasbeenusedforcivilworksdependingofthelifetimeofthestructure.Forotheritemdecliningdepreciation25%hasbeenused.BasedonFinnishtaxlawacorpo-ratetaxrate20%isusedincalculations.



6.1 BaseCase,commoditypriceforecast

ForBaseCasecommoditypriceforecastfromConsensusEconomicsIncisused(Fig-ure27).

Figure27ConsensuspriceforecastTheBaseCaseGrossRevenueoverLOMispresentedintable29below.Table29Grossrevenue,consensuspriceforecastBaseCase

Forecast 2017 2018 2019 2020 2021 2022 LOMGrossRevenuekEUR 25571 27101 36859 37583 38587 39013 204714

AgAuPb concentrate 22565 23785 31057 31605 32558 32906 174476Ag Payment 19492 21310 25465 25687 26530 26518 145001Au Payment 3493 3310 5664 5823 5881 6007 30178Pb Payment 1418 1596 2971 3127 3183 3408 15703Treatment charge -1297 -1384 -1830 -1835 -1838 -1858 -10043Ref charge Ag -508 -990 -1114 -1096 -1097 -1064 -5869Ref charge Au -26 -44 -74 -76 -76 -78 -374Penalty Sb -7 -12 -24 -25 -25 -27 -120

Zn concentrate 3006 3316 5802 5978 6029 6107 30238Zn Payment 2692 2952 5972 6188 6202 6445 30451Ag Payment 878 982 1252 1275 1315 1240 6941Au Payment 91 100 31 21 21 -10 253Treatment charge -655 -718 -1453 -1505 -1509 -1568 -7408

0,00

5,00

10,00

15,00

20,00

25,00

-

500

1 000

1 500

2 000

2 500

3 000

2016 2017 2018 2019 2020 2021 2022

SIVE

RPR

ICE

METALPRICE

PriceforecastUSD

Ag Au Zn Pb



ThecashflowstatementispresentedinTable30.Table30CashFlowstatement

SilverMineprojectsummaryoftheresultsofthecashflowmodellingandvaluationispresentedintable31fortheforecastcommodityprices.

NETSALES(NSR) 204714 0 25571 27101 36859 37583 38587 39013OperatingCosts

Generaladmin -3420 0 -570 -570 -570 -570 -570 -570OpenPit -2752 0 -621 -641 -518 -518 -509 0Mine -60518 0 -4224 -4445 -11914 -12435 -12780 -14168Mine,pumpsandmaintanance -2507 0 0 0 -574 -599 -602 -732Plant -37432 -942 -9352 -9069 -5685 -5403 -5403 -5285Site -3485 0 -606 -603 -576 -576 -576 -576

TOTALOPERATINGCOSTS -110114 -942 -15373 -12089 -19837 -20101 -20441 -21331TotalEBITDA 94600 -942 10198 15011 17022 17483 18147 17682

EBITDA/Year(First4years) 59714CapitalCosts

BasicInvestments -27985 -27629 -356 0 0 0 0 0Development -7579 0 0 -3942 -1700 -1360 -578 0Restvalue 11978 0 0 0 0 0 0 11978

TOTALCAPITALCOST -23586 -27629 -356 -3942 -1700 -1360 -578 11978Contingency -5000 -2000 -2000 -400 -300 -300 0 0

GENERAL+CAPITALCOSTS -27816 -28859 -2356 -4342 -2000 -1660 -578 11978PublicFunding 1500 0 1500 0 0 0 0 0CFAdjustments 0 0 0 0 0 0 0

CASHFLOW -29801 9342 10670 15022 15823 17569 29660



Table31Financialresultsbasedonforecastcommodityprices

P R O F I T A B I L I T Y A N A L Y S I S

Project description 1 000 EUR

Nominal value of all investments 40 564 Discounted investments 39 465Required rate of return 0,00 % VariableCalculation term 7,0 years 1/2016 - 12/2022Calculation point 12/2016 (In the end of period)

Present value of business cash flows Notes± PV of operative cash flow 73 484 Ag price 17…20 UDS/oz+ PV of residual value 8 137 Au price 1191…1256 UDS/oz

Present value of business cash flows 81 621

- Present value of reinvestments (maintenance etc.) 0Total Present Value (PV) 81 621

Investment proposal Nominal PV- Proposed investments in assets -40 564 -39 465+ Investment subventions 0 0

Investment proposal -40 564 -39 465

Net Present Value (NPV) 42 156 >= 0NPV as a monthly annuity - # NPV (5%) 50 008 before tax

Internal Rate of Return (IRR) 32,58 %Internal Rate of Return before tax 36,41 %Profitability Index (PI) 2,07 >= 1Calculation point, Payback 1/2017Simple Payback, years 2,7 Based on FCF

Return on net assets (RONA), % 64,8 % Average 6 yearsEconomic Value Added (EVA) 7 595 Average 6 years

Discounted Value Added (DCVA) 32 96311/2018 12/2018 ?

Calculation is made by 1.3.2016Calculation file

Pekka VeistoI:\Sotkamo Silver \DFS update Q4_2015\Final calculations\Tar kastateluajankohta 1_2017\Kanada\Diskonttaus 5 pr os\Blaiken 6Y_Tekes_f or ecast_20160229.xlsm

6 operation years

NSR204 714 €Tekes+Outotec O&MBlaiken plant

Sotkamo Silver, Blaiken + OT+Tekes / Forecast

$/€0,92



6.2 Projectsensitivities

For illustrative purposes a Down Side andUp-Side caseswas developed. In thedownsidecasesilverprice12,7$/ozandgold1200$/ozwasused.IntheUp-Sidecasethevalueswere28,0$/ozforsilverand1500$/ozforgold.Thekeyfiguresofhighandlowpricessensitivitiesanalyze(downsidecase/up-sidecase)areshowninTable32.Table32ThesensitivityofBasecase

6.3 Managementcase

IntheManagementcasetheorereservesbelowthebasecasemininglevelarepro-cessed.ThiswillincreasetheLOMfrom6to11years.ThesummaryoftheresultsofManagementcasecashflowmodellingandvaluationforconsensusforecastcaseispresentedinTable33.

Currency:1000€DFS2014/3 LowPrice ConsensusPrice HighPrice

Ag=15,5$/OZ SilverMine SilverMine SilverMineMillFeed(tonnes) 3335439 2443314 2443314 2443314

LOM(years) 8 6 6 6k€ k€ k€ k€

Revenue 155906 153748 204263 292644Capex(LOM) 34201 40564 40564 40564InitialCapex 23903 29629 29629 29629Opex(LOM) 123476 110114 110114 110114

EBITDA 32429 44085 94600 182981EBITDAfirst4years 28427 30489 59714 120996NPV(5%beforetax) 392 8883 50008 124382

IRR(beforetax) 9,0% 11,2% 36,4% 85,4%Payback - 5,1 2,7 1,2

BaseCase--6YearsOperationBaseCase:LOM=MineralReserves



Table33Theresultsofcashflowmodelling,Managementcase

TheManagementcasekeyfinancialfiguresofconsensus,highandlowpricessen-sitivitiesanalyze(downsidecase/up-sidecase)areshowninTable34.

P R O F I T A B I L I T Y A N A L Y S I S

Project description 1 000 EUR

Nominal value of all investments 44 090 Discounted investments 41 875Required rate of return 0,00 % VariableCalculation term 12,0 years 1/2016 - 12/2027Calculation point 12/2016 (In the end of period)

Present value of business cash flows Notes± PV of operative cash flow 124 134 Ag price 17...20 UDS/oz+ PV of residual value 4 436 Au price 1191...1256 UDS/oz

Present value of business cash flows 128 570

- Present value of reinvestments (maintenance etc.) 0Total Present Value (PV) 128 570

Investment proposal Nominal PV- Proposed investments in assets -44 090 -41 875+ Investment subventions 0 0

Investment proposal -44 090 -41 875

Net Present Value (NPV) 86 695 >= 0NPV as a monthly annuity - # NPV (5%) 103 210 before tax

Internal Rate of Return (IRR) 35,16 %Internal Rate of Return before tax 40,03 %Profitability Index (PI) 3,07 >= 1Calculation point, Payback 1/2017Simple Payback, years 3,0 Based on FCF

Return on net assets (RONA), % 130,7 % Average 11 yearsEconomic Value Added (EVA) 10 475 Average 11 years

Discounted Value Added (DCVA) 78 80711/2018 12/2018 ?

Calculation is made by 1.3.2016Calculation file

Pekka VeistoI:\Sotkamo Silver \DFS update Q4_2015\Final calculations\Tar kastateluajankohta 1_2017\Kanada\Diskonttaus 5 pr os\Blaiken_11 year s_Tekes_consensus_20160301.xlsm

Consensus forecast

NSR418 184 €

Blaiken + OT+Tekes

Sotkamo Silver, Blaiken 11 years + OT +Tekes / Fore

Management Plan

$/€0,92



Table34ThesensitivityofManagementcase

Managementcasesimplifiednominalnetpre-taxcashflowdiagramispresentedinFigure28.Figure28Managementcasepre-taxcashflowdiagram

Currency:1000€LowPrice ConsensusPrice HighPriceSilverMine SilverMine SilverMine

MillFeed(tonnes) 4693314 4693314 4693314LOM(years) 11 11 11

k€ k€ K€Revenue 301926 418183 582797

Capex(LOM) 44090 44090 44090InitialCapex 29669 29669 29669Opex(LOM) 223925 223925 223925

EBITDA 78002 194258 358873EBITDAfirst4years 27823 57048 118330NPV(5%beforetax) 22432 103210 223129

IRR(beforetax) 15,0% 40,0% 85,6%Payback 5,9 3,0 1,3

ManagementViewCase--11YearsOperation:LOM=Mineralreserves+5yearsfrom

ExplorationPotential



TheManagementcash-flowispresentedinTable35.Table35Managementcase,Cash-flowstatement

NETSALES(NSR) 418184 0 25121 27101 36859 37583 38587 39023 42832 42769 42769 42769 42769OperatingCosts

Generaladmin -6270 0 -570 -570 -570 -570 -570 -570 -570 -570 -570 -570 -570OpenPit -2808 0 -621 -641 -518 -518 -509 0 0 0 0 0 0Mine -138975 0 -4224 -4445 -13201 -13620 -13337 -15000 -14765 -15272 -15272 -14966 -14873Mine,pumpsandmaintanance -5168 0 0 0 -574 -599 -602 -732 -532 -532 -532 -532 -532Plant -66558 -942 -9244 -8970 -5635 -5353 -5354 -5235 -5353 -5353 -5353 -5353 -5353Site -6393 0 -606 -603 -576 -576 -576 -576 -576 -576 -576 -576 -576

TOTALOPERATINGCOSTS -222983 -942 -15264 -12040 -21074 -21237 -20948 -22113 -21797 -22303 -22303 -21997 -21905TotalEBITDA 195201 -942 9857 15061 15784 16346 17639 16910 21036 20466 20466 20772 20864

EBITDA/Year(First4years) 57048CapitalCosts

BasicInvestments -28025 -27669 -356 0 0 0 0 0 0 0 0 0 0Development -12713 0 0 -3942 -1700 -1360 -578 0 -1328 -1079 -1079 0 -234Restvalue 8112 0 0 0 0 0 0 0 0 0 0 0 8112

TOTALCAPITALCOST -31213 -27669 -356 -3942 -1700 -1360 -578 0 -1328 -1079 -1079 0 7878ContingencyforInitialInvestments -5000 -2000 -2000 -400 -300 -300 0 0 0 0 0 0 0GENERAL+CAPITALCOSTS -43320 -28899 -2356 -4342 -2000 -1660 -578 0 -1328 -1079 -1079 0 7878

PublicFunding 1500 0 1500 0 0 0 0 0 0 0 0 0 0CASHFLOW -29841 9001 10719 13784 14686 17061 16910 19708 19387 19387 20772 28742



7 BASECASEPROJECTSCHEDULE

TheprojectschedulehasbeenupdatedbasedonuseofBlaikenplant.Ittakes12monthsfromthestartofdismantlingBlaikenplanttostart-up.ThemainschedulefortheprojectisshowninFigure29.

Figure29SIlverMineprejectMainschedule



8 CONCLUSIONSANDRECOMMENDATIONS

Basedonthedevelopmentoftheprojectconcept:- useofBlaikenplant- newminingplanbasedonupdatedorereserves

thisupdatetotheBankableFeasibilityStudy2014demonstratebothtechnicalandeconomicviabilityoftheSilverMineproject,eventhesilverpricehasfallenfromtheBFS2014levelof21,5$/oztoBFS2014downsidelevelof15,5$/ozandbelow.

silver mine bfs update - sotkamo reports/160322_sotkamo... · 1.5 tmf area 11 1.6 base case 11 ......

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