SRL.V · 2019-04-30 12:00:00

Salazar Announces Results of Preliminary Economic Assessment FOR the El Domo VMS Deposit

Economic Studies

SALAZAR ANNOUNCES RESULTS OF PRELIMINARY ECONOMIC ASSESSMENT FOR

THE EL DOMO VMS DEPOSIT

VANCOUVER, BRITISH COLUMBIA, MAY 2 nd, 2019 - SALAZAR RESOURCES LIMITED (TSX -V: SRL)

(Frankfurt: CCG.F) (“Salazar” or the "Company") Mr. Fredy Salazar, President and CEO, is pleased to announce a

new Mineral Resource estimate and results of a Preliminary Economic Assessment (“PEA”) for the El Domo

volcanogenic massive sulphide deposit (“El Domo”), located within the Curipamba Project, Bolivar State, Ecuador

which will be summarized in an independent National Instrument (“NI”) 43 -101 Technical Report within 45 days.

The Company has an option agreement with Adventus Zinc Corporation (“Adventu s”) whereby Adventus is

earning a 75% interest in the property and the Company retains a 25% interest.

Highlights

Table 1: PEA Results Summary

PEA Base Case -10% Pricing +10% Pricing Long-term

Consensus

Forecast(3)

Spot Prices as

of April 30,

2019

After-Tax NPV ($M, 8% discount rate)(2) $288 $225 $342 $330 $271

After-Tax IRR (%)(2) 40% 35% 45% 44% 39%

First 6 Years of After-Tax Cashflow ($M) $449 $392 $500 $488 $434

Initial Capital Cost ($M, includes refundable VAT)(4) $185

Life of Mine (“LOM”) Sustaining Capital Cost ($M) $105

Total Capital Cost ($M) $289

C1 Cost ($/lb CuEq, see below production)(5) $0.96 $0.94 $0.98 $0.98 $0.91

Payback Period (years) Approximately 2 years

Nominal processing capacity (tpd) 1,750

LOM CuEq Head Grade over 15 years 4.9%

Average annual payable production (Years 1 -14) Cu = 8,495 t

Au =24,433 oz

Zn = 10,831 t

Ag = 558,160 oz

Pb = 564 t

CuEq = ~19,000 t

Metal prices assumed $3.15/lb Cu

$1,350/oz Au

$1.15/lb Zn

$18.00/oz Ag

$1.00/lb Pb

$2.84/lb Cu

$1,215/oz Au

$1.04/lb Zn

$16.20/oz Ag

$0.90/lb Pb

$3.47/lb Cu

$1,485/oz Au

$1.27/lb Zn

$19.80/oz Ag

$1.10/lb Pb

$3.38/lb Cu

$1,436/oz Au

$1.22/lb Zn

$19.80/oz Ag

$1.00/lb Pb

$2.91/lb Cu

$1,285/oz Au

$1.33/lb Zn

$14.91/oz Ag

$0.88/lb Pb

Notes:

1) Unless otherwise noted, all currencies are reported in US dollars on a 100% basis

2) Assumes an 18-month construction period as the basis for the internal rate of return (“IRR”) and net present value (“NPV”) calculations

3) Long-term, consensus metal forecasting has been provided by RPA

4) Capital cost estimates used for the PEA are based off benchmarking and not engineering design

5) C1 Cash Cost is net of direct operating costs and royalties

News release, May 2, 2019 Pg 2

The economic analysis contained in this news release is based, in part, on Inferred Mineral Resources, and is

preliminary in nature. Inferred Mineral Resources are considered too geologically speculative to have the

economic considerations applied to them that would enable them to be categorized as Mineral Reserves. There is

no certainty that economic forecasts on which this PEA is based will be realized. Mineral Resources that are not

Mineral Reserves do not have demonstrated economic viability.

President and CEO of Salazar, Mr. Fredy Salazar, stated "The PEA announced today represents the most significant

milestone in the Company’s development to date. From initial discovery by Salazar Resources geologists to the

recent agreements with Adventus Zinc Corporation, this is the culmination of a long journey. The El Domo resource

at 4.9% copper equivalent is almost an order of magnitude higher than average global copper grades, which is

reflected in the compelling set of economics as defined in today’s PEA, and the project is located in an increasingly

pro-mining jurisdiction, with good infrastructure.

The PEA shows that El Domo can be a low -cost supplier of copper gold and zinc, generates cash flows after

taxation of US$449 million over the initial six years of production, and delivers an IRR of 40% with a payback of less

than two years. I would like to thank the entire El Domo team, Salazar Resources employees, independent

consultants and our partner Adventus Zinc Corporation, who have worked extremely hard to deliver this high-

quality study. Salazar Resources is entering a new and exciting phase of its journey as a funded explorer, with a

25% stake in a great project advancing towards production.”

PEA Contributors

The following companies have undertaken focused work programs since July 2018 that have been referenced in

preparation of the PEA for El Domo:

• RPA – Lead author and Independent Qualified Person (“IQP”), Mineral Resource estimation, open pit and

underground mine design, mine plan, and mine layout

• Klohn Crippen Berger – Tailings storage and waste rock facilities

• Knight Piésold Ltd. – Social and environmental matters, access roads and power transmission line

• Base Metallurgical Laboratory Ltd. – Metallurgical laboratory work

• Independent Mining Consultants, Inc. – Open pit production throughput analysis

Geology and Updated Mineral Resource Estimate

El Domo, located within the Curipamba project, Bolivar and Los Rios Provinces, Ecuador is hosted in a juvenile

volcanic-magmatic arc of the Paleocene -Eocene Macuchi Terra ne that is known to host at least two other

volcanogenic massive sulphide deposits. Sulphide mineralization at El Domo is principally located at the contact

between a felsic volcanic dome and overlying volcaniclastic strata and is generally flat lying. It has been traced for

approximately 800 m in a north-south direction and between 350 m and 500 m east-west.

An update to the Mineral Resource estimate for El Domo has been completed as part of the PEA to include all

recent infill drilling completed in 2018. The updated, open pit constrained, Mineral Resource estimate for El Domo

has an effective date of May 2 , 2019 and is supported on information provided from 309 core boreholes, totaling

60,449 metres, completed between 2007 and 2018. As seen in Tables 2a to 2c, Measured Mineral Resources for El

Domo total 1.4 million tonnes grading 1.92% copper, 0.37% lead, 3.52% zinc, 3.75 g/t gold and 58 g/t silver. The

Indicated Mineral Resources for El Domo tot al 7.5 million tonnes grading 2.02% copper, 0.26% lead, 2.81% zinc,

2.33g/t gold and 49 g/t silver. The Inferred Mineral Resources for El Domo total 1.3 million tonnes grading 1.52%

copper, 0.20% lead, 2.25% zinc, 1.83 g/t gold and 42 g/t silver.

News release, May 2, 2019 Pg 3

Table 2a. Total Mineral Resource for El Domo

Resource

Category

Tonnes

(Mt)

Grade Contained Metal

Cu (%) Pb (%) Zn (%) Au (g/t) Ag (g/t) Cu

(kt)

(koz) Ag (koz)

Indicated 1.8 2.91 0.20 3.51 1.85 43 51.9 3.6 62.5 106 2,467

Inferred 0.6 2.46 0.19 2.82 2.09 37 15.5 1.2 17.8 42 751

Notes for Table 2a, 2b, and 2c:

1. Mineral Resources in these tables are effective as of as of May 2, 2019

2. CIM (2014) definitions were followed for Mineral Resources

3. A nominal minimum thickness of two metres was applied to the Mineral Resource wireframes

4. Bulk density assigned on a block per block basis using the correlation between measured density values and base metal grade

5. Mineral Resources are reported above a cut-off net smelter return (“NSR”) value of US$25 per tonne for potential open-pit Mineral Resources and

US$100 per tonne for potential underground Mineral Resources

6. The NSR value is based on estimated metallurgical recoveries, assumed metal prices and smelter terms; which include payable factors treatment

charges, penalties, and refining charges

7. Metal price assumptions were: US$3.15/lb Cu, US$1.00/lb Pb, US$1.15/lb Zn, US$1,350/oz Au and US$18/oz Ag

8. Metallurgical recoveries assumptions were based on three mineral types defined by the metal ratio Cu/(Pb+Zn):

• Zinc Mineral (Cu/(Pb+Zn)<0.33): 84% Cu, 84% Pb, 95% Zn, 51% Au and 71% Ag

• Mixed Cu/Zn Mineral (0.33≤Cu/(Pb+Zn)≤3.0): 88% Cu, 85% Pb, 96% Zn, 66% Au and 69% Ag

• Copper Mineral (Cu/(Pb+Zn)>3.0): 88% Cu, 69% Pb, 73% Zn, 27% Au and 50% Ag

9. NSR factors were also based on the metal ratio Cu/(Zn+Pb):

• Zinc Mineral (Cu/(Pb+Zn)<0.33): 29.94 US$/% Cu, 9.17 US$/% Pb, 11.52 US$/% Zn, 14.17 US$/g Au and 0.27 US$/g Ag

• Mixed Cu/Zn Mineral (0.33≤Cu/(Pb+Zn)≤3.0): 44.20 US$/% Cu, 11.34 US$/% Zn, 22.90 US$/g Au and 0.27 US$/g Ag

• Copper Mineral (Cu/(Pb+Zn)>3.0): 46.27 US$/% Cu, 6.86 US$/g Au and 0.19 US$/g Ag

10. Numbers may not add due to rounding

The updated Mineral Resource estimate possesses a similar footprint to the previous Mineral Resource estimate

announced by Adventus Zinc Corporation (see January 31, 2018 news release), but infill drilling in 2018 resulted in

News release, May 2, 2019 Pg 4

the upgrading of portions of t he Mineral Resource from previously classified Indicated to Measured and Inferred

to Indicated categories. The new Mineral Resource estimate has a total tonnage distribution of approximately

14%, 73%, and 13% classified in the Measured, Indicated and Infer red categories, respectively, which includes the

Measured category for the first time. The increases in average grades in the Measured and Indicated Mineral

Resource categories of approximately 24% for copper, 10% for gold, and 21% for zinc are the result of higher NSR

cut-off values, the improved geological model and related grade estimation domains, and changes to capping

levels.

Mining and Processing

The principal mining method proposed in the PEA is open -pit mining at 1,750 tpd throughput at the m ill that can

be conventionally extracted using trucks, loaders and backhoes . The open pit mine design consist s of a single pit

with a mining sequence optimized through four main phases to maximize grade, reduce stripping ratios, and

maintain the mill at optimum capacity for production of saleable concentrates of copper, zinc and possibly lead.

Mining is expected to begin with eighteen months of pre -production waste mining on steep terrain. Mining

operations consist of four open pit phases and underground operation. Mining equipment in the open pit is

expected to include 40 -tonne haul trucks, 3.8 m 3 backhoe loader s and 114 mm blasthole production drills.

Additional support heavy equipment is expected to include dozers, graders, and water trucks.

Underground mining operations would start in year 10 of the production schedule proposed in the PEA at a target

rate of 1,000 tpd, using variations of room and pillar methods. Access to the mine would be from a single decline

that will transport run of mine ("ROM") to the surface facilities. In conjunction with the o wner’s development

team, it is conceived that a contractor would be engaged for the initial development of the mine. Mining

equipment selection is based on production requirements and stope dimensions. Under the PEA mine plan,

ventilation is expected to be established in phases as mine development progresses to facilitate mining through

the various zones of mineralization.

Metallurgical test -work had previously been conducted between 2009 and 2014 on composite samples taken

from both drill core and assay sample reject material. In 2018, Adventus funded a new metallurgical test -work

program designed to provide indicative metallurgical performance that could be expected during the production

of saleable concentrates.

Conventional rougher and cleaner flotation t esting was completed on the composites and the selected optimum

metallurgical settings for the composites were taken to locked cycle tests , which simulates the metal recovery

process. Locked cycle testing indicates the expected metallurgical performance fr om the test materials that could

result in the production of commercial concentrate material. Details of the most recent metallurgical test results

can be reviewed in the April 15, 2019 news release.

Net recoveries to copper, zinc, and lead concentrates total 80.7% for copper, 38.3% for lead, 78.5% for zinc, 57.5%

for gold, and 69.0% for silver. The net recoveries only include metals that are payable in their respective

concentrates.

The process plant is expected to ramp-up operations over a six -month period after completion of construction to

a steady state throughput rate of 612,500 tonnes/year (1,750 tpd).The processing plant design includes a

comminution circuit consisting of a crushing circuit followed by ball milling, and a sequential flotation circuit

producing copper, zinc, and lead concentrates.

The tailings storage and waste rock facilit ies proposed for construction and development at El Domo are

conventional in nature for the base case scenario and both facilities are located on owned concessions close to

News release, May 2, 2019 Pg 5

mine infrastructure. Klohn Crippen Berger completed an analysis of nine different tailings storage locations, with

various designs and technologies in order to arrive at the preferred location. The tailings storage facility is

designed for a 1 in 10,000-year earthquake event, with similar international design standards for storms and

floods.

The PEA proposed open pit production totals 7.5 M tonnes, which has been estimated through the application of

a $25/t NSR cut -off value to the open pit constrained Mineral Resource estimate and then allowing for a dilution

factor, mining recovery and design losses. The open pit min e life , including pre -stripping, is estimated at

approximately 16-years, with a total strip ratio of 6.3.

Potential underground production totals 1.2 M tonnes, which has been estimated through the application of a

$100.00/t NSR cut -off value to the underground constrained Mineral Resource estimate and then allowing for a

dilution factor, and mining recovery design losses. The underground mine life is estimated at approximately

6-years, with additional time required for underground access development and infrastructure construction.

Initial Capital Costs

The initial capital expenditures for the project as estimated by RPA is summarized in Table 4. Capital expenditures

to be incurred after the start-up of operations are assigned to sustaining capital and are projected to be covered

by operating cash-flows.

Project contingencies have been added where applicable , excluding capitalized operating costs, which results in

an overall contingency of $33.0 M or 25% for the PEA (excluding VAT). Adventus believes that El Domo will benefit

from established infrastructure in Ecuador, noting that El Domo is only 150 km by road to the major port city of

Guayaquil.

Table 4: Initial Capital Cost Estimates

Item Pre-Production

(Initial Capital, $M)

Contractor Mining $17

Processing $52

Infrastructure $24

Tailings $7

EPCM / Owners Cost / Indirect Costs $32

Contingency (25%) $33

VAT (12%, which is a credit against taxes once exporting) $20

Total (100% basis) $185

Notes:

(1) Totals do not necessarily equal the sum of the components due to rounding adjustments

(2) Direct process plant capital costs are based on benchmarking and not from engineering design

Sustaining Capital Costs:

RPA estimates the LOM sustaining capital for El Domo to be $105 M, which is expected to be funded by operating

cash flow s. The sustaining capital estimate is primarily for the expansion of the tailings storage facility,

development of the underground mine, and reclamation and closure. Adventus has assumed $10 M at the end of

LOM, and that has been credited against $34 M in closure and reclamation costs.

News release, May 2, 2019 Pg 6

On Site Direct Operating Costs (“Opex”)

The estimated Opex for El Domo is $54.80/t of mill feed – see Table 5. RPA has estimated the Opex based on

industry benchmarking, proprietary information and its professional experience.

Table 5: On Site Operating Cost for Base Case

Area Cost ($/t)

Mining $3.15/tonne moved for the open pit and $71.50/tonne processed underground mining

Processing $21.80/tonne processed

G & A $4.74/tonne processed

Total: $54.80/tonne processed for the life of mine (blended open pit and underground mining cost)

Notes:

(1) Totals do not necessarily equal the sum of the components due to rounding adjustments.

Off-Site Costs (Concentrate Transport, Treatment, and Refining Charges)

Projected Treatment Charges (“TCs”) and transport charges for the copper, zinc and lead concentrates were

developed by RPA based on their extensive experience on engineering projects in Latin America.

Adventus anticipates that the copper, zinc, and lead concentrates are likely to be sold primarily to smelters in

Asia. Off-site costs are comprised of freight charges (highway and ocean), port handling fees, and smelter

treatment and refining charges – see Table 6.

Table 6: Off Site Costs – Copper, Zinc and Lead concentrates

Item Treatment Charges

Silver refining $0.50/oz

Gold refining $5.00/oz

Copper TCs $80/t

Copper RCs $0.08/lb

Lead TCs $200/t

Zinc TCs $230/t

Transportation $98/t conc

The concentrates are of good quality, with strong precious metals credits. A minor penalty for the zinc grade over

4% in the copper concentrate was assumed, at a rate of US$2 for every 1% over 4% zinc. Life-of-mine penalties for

the copper concentrates are assumed at approximately US$3.3M, which could be decreased with future blending

strategies.

Taxes

Income and other taxes, and royalties that are presented in the PEA were based on Ecuadorian legislated tax rates

and do not reflect any identified tax planning opportunities. LOM royalties to the government are estimated to be

$63M, value add added taxes (“VAT”) are estimated to be $34M, while additional profit sharing of $73M and

income taxes of $83M project an estimated total of greater than $253M in government royalties and taxes over

the 15 year mine life. A 2% NSR royalty is payable to Altius Minerals Corporation. The VAT is assumed as

refundable if the concentrates are exported internationally.

Infrastructure

The major infrastructure items considered and costed in the PEA support a mining and milling operation that is

expected to operate 24 -hours per day, seven -days per week. The design of project infrastructure has prioritized

environmental protection, workforce safety, and operating efficiency while minimizing community impacts. Major

infrastructure items include, but are not limited to the following:

News release, May 2, 2019 Pg 7

• Power Supply: It is assumed that El Domo will connect to the Ecuadorian power grid along existing road

access and a new mine access road based on work completed by Knight Piésold in early 2019. RPA has

benchmarked and estimated the cost for power at $0.11/kWh.

• Road Access: Access to the project site is planned to use both new and existing road networks based off

work completed by Knight Piésold in 2019. A new 12.5 km access road is expected to connect the project

site to the existing road network. Secondary access roads to El Domo will also be maintained;

• Mine haul road access for waste and feed to the mill that can accommodate 40-tonne trucks;

• Mine facilities including but not limited to buildings for maintenance, warehousing, administration,

laboratories, security, first aid, explosive storage, and fuel storage;

• Mill and process plant including crushing, grinding, and flotation based on detailed metallurgical work

done by Base Metallurgical Laboratories Ltd. under the direction of RPA;

• Water supply and management systems, and;

• Lined tailings storage facility and waste rock storage pads leveraging off studies completed by Klohn

Crippen Berger in early 2019.

Environmental and Community Matters

Knight Piésold has reviewed the work completed at El Domo t o date and concluded that the ongoing

environmental monitoring and community engagement programs have provided appropriate support to the

project. All exploration permits with the Ecuadorian Ministry of Environment are in good standing.

Knight Piésold has subsequently been contracted to prepare a study plan to complete the Environmental Impact

Assessment and environmental permitting to Ecuadorian and international standards. Baseline studies are

underway and include geosciences, climate and water, terre strial biota, the human environment, and natural and

cultural heritage. An enhanced program to support mine development will commence in the second quarter of

2019.

Opportunities and Future Work

RPA and the Company have identified several areas and opport unities that may provide significant costs savings

and improved economics for the project. Post -PEA the Company will embark on additional technical work and

trade-off engineering studies to better position and further de -risk the project, including but not limited to the

following:

Mining

• Optimization of the production schedule, including transition between the open -pit and the underground

mining operations;

• Optimization of the open -pit and underground designs through collection of additional geomechanical

information;

• Further work to increase confidence in the Mineral Resource and lead to the definition of a Mineral

Reserve;

• Detailed equipment costing to determine potential discounts to list price for all major components, as

well as review purchase versus leasing options for mining heavy equipment, and;

• Back-filling of waste rock into the open pit.

Milling and Metallurgy

• Additional metallurgical work to optimize results from the mixed and copper geometallurgical domains

and continue research on the optimum grind size, analyze recoveries of the various metals and the effects

of the higher grade coming from the mineral sorters on metal recoveries;

News release, May 2, 2019 Pg 8

• Complete metallurgical test -work on the zinc geometallurgical domain through more detailed test -work

and optimization;

• Optimize reagents to reduce costs and improve metallurgy;

• Investigate the potential for a gold recovery circuit from a pyrite concentrate not currently in the PEA,

and;

• Investigate ore blending as an option to simplify the three geometallurgcal domains and find efficiencies

in process design.

Tailings Storage and Waste Rock Facilities

• Detailed analysis of tailings storage and waste rock storage facilities for an integrated waste management

plan and design to reduce overall costs.

Other

• Construction camp location, and a trade-off study between at site accommodation versus daily commutes

to the project from local communities

• Investigate regional quarry sites and quality of quarry material for construction purposes, notably the

tailing storage facility;

• Water supply for the project site, and a trade -off study between a constructed reservoir with project

infrastructure or a water pipeline from a local source, and;

• Power sources for the project site, including a trade -off study between diesel generators as part of the

project infrastructure or a power transmission line that links to the Ecuadorian power grid.

The Company has been advised that as part of its earn in requirements, Adventus aims to commission and

commence a detailed Feasibility Study later in 2019. There is no assurance that the results of a Feasibility Study

will recommend proceeding with a development project on El Domo , and any recommendation to proceed with

development may differ significantly from the scope and design recommended in this PEA.

Changes to the mine plan and mine design that may be recommended in the Feasibility Study, if approved and

implemented, could impact the construction schedule, capital and operating costs, profitability and cash flows

and timeline to production, the impact of which cannot be quantified at this time. As a result, there are additional

uncertainties with respect to the size and grade of the Mineral Resources that may become Mineral Reserves and

that will serve as the basis for the Feasibility Study, the extent of capital and operating costs, mineral recoveries

and financial viability.

In addition, exploration activities within the 21,500 -hectare Curipamba Project that encompasses El Domo will

continue. The objective of continuing regional exploration is to develop and assess targets that could further

maximize Adventus’ flexibility with respect to future development decisions on the Curipamba Project.

Additional Considerations Related to the PEA

Approximately 5% of the tonnage from the open -pit constrained Mineral Resource and 24% of the tonnage from

the underground constrained Mineral Resource that forms the basis of the PEA is derived from Inferred Mineral

Resources. The estimated costs in this PEA are subject to an estimated margin of error of plus or minus 30-35%.

Investors should be cautioned that t here is no guarantee that the future construction and development of El

Domo will be completed in accordance with the 201 9 PEA results set forward in this news release. There is no

certainty that production will begin, or that operating capital, or that financial results will be consistent with the

2019 PEA.

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