Wednesday, December 06, 2017 Derek Macpherson

Toachi Site Visit: Exceptional Grades Make La Plata Shine

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Last month we had the opportunity to visit Toachi Mining Inc.’s (TSXV:TIM) La Plata Project in Ecuador, which hosts the gold-rich polymetallic volcanic-hosted massive sulphide (“VHMS”) La Plata Deposit. We were impressed with grades of the recently announced inferred resource (2Mt @ 13 g/t AuEq) at La Plata and look forward to the PEA expected in H1 2018 evaluating a small underground mining operation, which we expect to have strong economics based on the exceptional grades. Our review of the data, core, sections and work done to date gave us a positive view on the current resource and its potential to grow. We highlight that VHMS deposits typically occur in clusters and that the 2,335 hectare La Plata property hosts more than a dozen targets which remain to be tested, suggesting regional exploration upside exists.

The La Plata Deposit boasts exceptional grades. The La Plata deposit consists of the La Mina South and La Mine North Blocks (Figure 1), which both strike north-south for some 600m and dip moderately to steeply to the east. La Mina South represents the down-thrown extension of La Mina North and plunges to the south at 45 degrees. Mineralization at La Plata is hosted within stratiform massive sulphide horizons, typically sphalerite, chalcopyrite and pyrite, with minor bornite, covellite and chalcocite as well as galena. These lenses average 5m to 6m true thickness but can be up to 10m thick. The massive sulphide horizons occur at the contact between highly altered (quartz flooded plus sericite-pyrite) footwall andesites and unaltered hanging-wall basalt-andesite units. Gold-copper bearing quartz veinlets/stockworks overprint the footwall and massive sulphide zones, a common feature in many VMS deposits, though Toachi’s geologists postulate that these quartz stockworks may be associated with a post VMS porphyry event (Figures 2 to 5). Drilling to date has yielded a small, but exceptionally high-grade mineral resource (Figure 6). Toachi has met expenditure requirements to earn a 60% interest in the La Plata Project, after having spent US$4M since August 2016 and has a US$1.35M payment remaining to complete earning the initial 60%.

Current deposits remain open for incremental expansion. Overall, we believe there is potential for incremental increases to this maiden inferred resource as Toachi tests the down dip extensions of the eastern limbs and the down plunge extension of La Mina South, although the latter will require relatively deep drilling (+500m holes). Toachi recently completed down-hole electromagnetic (“EM”) surveys on 18 drill holes. Data is still being processed and interpreted and this survey may identify new conductive targets proximal to the existing deposit.

VMS deposits typically occur in clusters, suggesting regional targets have potential. VMS deposits often occur in clusters, along linear trends following volcanic rifts or in arcuate fashion along caldera margins. Toachi has identified 14 targets along a six-kilometer northeast trending corridor, which extends from the La Plata deposit to the Bella Vista prospect to the north (Figure 7). Most of these targets correspond to coincident soil geochemistry (Au, Ag, As, Cu, Mo, Sb, Zn) and geophysics (gravity highs) anomalies (Figure 8). We note that very limited drilling has been conducted beyond the La Plata deposit itself and that outcrop exposure is scarce (the property is covered by a layer of volcanic ash and reworked volcanic sediments). Targets of interest include “Guatuza”, 250m northeast of La Plata, (which returned 6.8m @ 7.0% Cu + 1 g/t Au) as well as a prominent discrete 250m x 250m gravity high 200m to the east of La Plata which has not yet been drilled.

Infrastructure and access. Toachi’s La Plata property is accessible within three-hours by road from Quito, most of it along a paved two-lane highway (Figure 9). The final 13km stretch to the property is along a well-maintained gravel road to the community of Palo Quemado (population 1,500). Palo Quemado occurs just outside the western edge of the property boundary and houses the company’s field office and core shed facilities. A network of gravel roads provides vehicle access from Palo Quemado to the La Plata deposit and other areas on the property. The community of Palo Quemada is connected to the national hydro grid and a power line transects the property.

Historic mill site, provides a natural location for new processing facilities. The La Plata deposit was mined from 1975 to 1981 by Minera Toachi who extracted 130,000 tonnes of ore at 4.1 g/t Au, 65.1 g/t Ag, 3.6% Cu and 7.1% Zn, from two small open pits as well as from underground. During our visit we did stop to observe the site of the historic milling/processing facilities (Figure 10). Though the area is overgrown with vegetation and all equipment has been stripped and removed, the area does remain vacant, and could potentially serve as location for a new mill site. We also did observe a pile of “unprocessed material” nearby (Figure 11); this sulphide rich material has oxidized and may pose a small environmental concern. Processing this material as a first step in commissioning a new plant would certainly help curie favor with the locals and government officials.

Land Use and Permitting. The La Plata concession was granted on August 2, 2016 and is valid for 25 years. In addition to the right to carry out exploration work (including drilling), Toachi is permitted to carry out underground mining operations of up to 300tpd, under Ecuador’s small-scale mining regime, conditional on obtaining customary mining and environmental licenses. It’s worth mentioning that more than two dozen land owners own surface rights in this predominantly agricultural area (largely bamboo and cattle farming). Toachi will have to come to an arrangement (i.e. either a purchase or lease agreement) with those land owners should it ever wish to commence mining activities. We were encouraged by the fact that Toachi has a local Community Social Responsibility (“CSR”) team in place who have engaged with the various stakeholders in the area. To date, Toachi generally appears to have community support for its exploration activities. Toachi’s October 2017 Technical Report estimates that eight land owners and approximately 80 hectares of ground may be impacted by mining activity centered around the La Plata deposit. In the event an agreement cannot be reached with surface rights holders, Ecuadorian law does provide for an appeals process which would involve the Regional Director of Mining. Finally, we note that the Illiniza Ecological Reserve is contiguous and to the south of the La Plata property while the Toachi-Pilaton Protected Forest affects the southern portion of the La Plata concession (but not the La Plata deposit area itself). We were assured by Toachi staff that proximity of these parklands will not affect permitting at La Plata.

Pending PEA, likely feature small scale with strong economics. In relatively short order, Toachi has successfully defined a small but high-grade gold-rich base metal resource at La Plata with metal content of 800Koz AuEq / 782Mlbs ZnEq. We believe that Toachi’s ability to incrementally expand this resource with further drilling is good. We look forward to the results of the Preliminary Economic Assessment expected in H1 2018, which will likely contemplate a small but high margin underground mining operation. Beyond La Plata, we believe the 14 targets defined by Toachi on the greater property have merit and may lead to discovery of additional massive sulphide deposits.

Ed Thorose | VP Corporate Development
Derek Macpherson | VP Mining Analysis
Alex Pitcher | Associate
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