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Soho Resources Releases Positive PEA, $182MM Net Cash Flow

Newsmakers: Soho Resources

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Soho Resources Potential $182MM Cash Flow at Tahuehueto in Mexico, Seeks Near Term Production

RITV: With me today is Ralph Shearing the President, CEO and founder of Soho Resources. Soho has just put out its Preliminary Economic Assessment (PEA) on the Tahuehueto Project in Durango, Mexico. Thanks for being here today Ralph.

Ralph Shearing: I really appreciate the opportunity, Doug. It’s great to be here and tell the story of our company.

RITV: Well the preliminary economic assessment you’ve just put out is quite remarkable for the first time out of the gate here. Let’s talk a bit about the numbers for the project. The PEA updated some of the tonnages and looked at new information for recovery rates and so on; what did they come out with?

RS: Well it’s a milestone for the company to get this out. What it has outlined for our project is that originally we had thought this would be an underground mine, due to the steep nature of the topography. The economic assessment has clearly shown that it can be open pit on portions of the deposit.

RITV: So give me an example. The open pit aspect, for example, roughly what are the numbers on the operating cost for that as opposed to the underground?

RS: If we add them all together the average cost of underground mining and surface mining on this project will be about $35 per tonne, so obviously the open pit mining costs are lower, and the underground are higher. Traditionally underground mining is probably in the neighborhood of $50 per tonne for mined and milled. So the open pit reduces that down on average to $30 to $35 per tonne. So it’s quite good.

RITV: Right and being an open pit deposit changes a lot to do with the economics, which the report told you.

RS: Of course. For the economic numbers or the net present values, it’s about $109.6 million. Internal rate of return is about 31% which is a good rate of return. The payback period is 2.2 years, which will payback all the costs of building the mine in that amount of time, based on the current plan. The capital cost is about $89.1 million and that is for building the mill, the infrastructure, bringing in the power, the tailings ponds. It does not include buying the mining equipment because the plan is to hire contractors to supply all of the mining equipment. So that’s a capital cost we won’t need to put into the cost at this point in time. That gets put into the operating cost.

RITV: And actually all those numbers are available to investors if they go and look at your profile in our RIQ calculators at resourceintelligence.net. You can see not only all your resource data, but also your operating and capital cost included in there. So you get a very good idea of what that’s worth at today’s metal prices as well.

Ralph, you mentioned the $109.6 million net present value discounted, and that was calculated not at today’s metal prices, but at something else. Can you explain that?

RS: It’s a three year rolling average price. So it takes into account the price of the metals over the past three years and that’s the figure we use.

RITV: And we’ve seen some huge changes in metal prices. What are the prices they used?

RS: I think it’s around $900+ dollars. I can quote them if you give me a moment here. $965 per ounce of gold, $15.38 for silver, $2.92/lb for copper, 95 cents for lead and 88 cents for zinc.

RITV: Wow. We’ll put the new numbers that we are seeing today for example, on screen so people can compare and investors can always go to your profile at resourceintelligence.net, check out your profile and look at how your value changes with the changes in prices.

RS: Well at current prices it becomes so much better. The difference between the current and the rolling average is great. So if the prices remain good by the time it takes us to build the mill, then we’ll be paying this thing back a lot faster and the economics will be a lot better.

RITV: Good. Let’s talk about that evaluation that Snowden’s given you. That was just for a small portion of your project, wasn’t it?

RS: Correct. It’s just for the resource that we have outlined to date and the upside potential on the project is huge. In my opinion maybe we found one fifth and maybe even less of the resource that will ultimately be discovered and mined on this project.

RITV: Right. You’ve got some optics that we can have a look at to better demonstrate how the resource works.

RS: Sure, I love speaking to pictures. It helps me out. So here are our pictures of the project. We’re looking from the southern boundary of the project up to the north. Right away you can see that it’s a very rugged topography. The ruggedness is a hindrance to exploration, but it is a definite help to underground mining. The hindrance to exploration is that it’s a little more difficult to build your access roads. However you can see that all along this structure are access roads, drill sites, so we have been successful and are able to build roads throughout the project. Even though it’s very steep, there’s enough material there to build your roads to get to the access you need. Of course you have to blast in few areas, but generally speaking it’s doable and not too difficult.

RITV: And also the PEA that just came out changed radically the structure of the mine which is that instead of just being an underground this could also be open pit.

RS: That’s correct; it could be an open pit mine particularly up in this El Creston zone. This area is designed in the current preliminary economic assessment to be open pit mine for probably 80% of it and underground the parts are a little bit too deep for open pit. So we get back to the structures, our red structures here are the resource structures, the only area where we’ve included or we’ve drilled in order to put the drilling results into the resource. So there is this Cinco de Mayo. We call this the Catorce zone up to Perdido. This El Creston is a structure extension fracture between two structures, that is one of our most well mineralized zones. That’s the area of the open pit. We’ve done a small amount of drilling here. We’ve also done drilling over here in the Santiago zone and this structure goes right over to the other side. So from here to here it’s about 2.4 km and again we haven’t found the downward extension or the limits of the ore body so far and they’re open along strike as well. More importantly, this is only one and a bit of structures; we have many more structures throughout the area that are mineralized. We’ve looked at them, we’ve sampled some of them, we know they are mineralized. The exploration side, upside potential of the project is enormous. We have drilled six holes in this text glamour; two of these holes have hit good mineralization to the north. So, the point really is that this resource we have is the tip of the iceberg of the project.

RITV: Right. Let’s talk about that then. What does the tip of the iceberg look like so far? When you add up the gold ounces, since this is 40% gold and add on to that the rest of the metals, you’re looking at something like 1.7 million ounces of gold total.

RS: On a gold equivalent basis, which is a difficult number to attribute to a base metal and gold mine, it’s primarily gold — 40% of our value is in the gold. Now the regulators and exchange don’t like us talking too much about gold equivalents for all metals until you’re much further along, but your numbers are correct.

RITV: So, what do you have then, if you separate them out? How many ounces of gold and so on are you looking at?

RS: In the resource we have about 665,000 ounces of gold. With gold and silver, we’re allowed to talk gold and silver, quick gold equivalence we have about 830,000 ounces of gold equivalent, just gold and silver and then the base metals would add to that, to get the figure you mentioned before.

RITV: What about the grades then? If you average out the grades which I did earlier, it takes you to about 5 plus grams per tonne gold.

RS: On a gold equivalent basis, yes.

The average grade is still around 2 grams per tonne gold over the life of the mine. But it has been designed to go after the higher grade areas first in order to pay back capital more quickly and I think in the first couple of years our grades are probably even closer to three and half to four grams gold only, plus the base metals on top of that.

RITV: Your Preliminary economic assessment was completed by Snowden. What were the suggestions that they made at the end of the report? What was their response to the project?

RS: The Snowden mining consultants, the Vancouver office, did the report. They liked the project; obviously they came out with a good economic assessment. Recommendations for future work are to do slope stability in the Cinco de Mayo area which I was explaining before. To do all the environmental work, to have another look at geology and the configuration of the model we have outlined so far, and maybe do some more work on models, see whether we can improve the model geologically speaking which would allow them to have better control grade control etc. and less delusion when they’re putting the numbers together. They want us to move it quickly into the pre feasibility stage where you do all your environmental work, your permitting, cost, more detailed cost estimates of what its going to take to build the mine.

RITV: How long is it going to take you to get toward a position where you’ll be seeing cash flow?

RS: To build the mine on here, I would estimate two to three years, if everything comes together nicely and we have access to the capital to do the work necessary to get there.

RITV: So what are you going to do to get there?

RS: We’re going to market the company. We really haven’t marketed over the past couple of years so we now have the PEA itself which will allow us to market it much more effectively. Next steps are really to raise the money that will carry us through the feasibility into production and we are confident we can get there. We do have a large Chinese shareholder interest in the company, approximately 43% of our company is owned by 6 individual private investors out of mainland China. So they gave us a good contact into the Chinese marketplace, as well as the mining space in China and we already have numerous companies following us, waiting for this preliminary economic assessment, so we’re expecting some good things to come out of China.

RITV: There’s another aspect of the size of the project that I wanted to bring up. Now you’ve accomplished this goal of proving a resource, proving that it’s economical you have a choice to make I guess. Do you continue exploring or do you move into development?

RS: Well, it’s a very good question. I would say that it would be best for us first off to raise money. We need to raise money to be able do both. I think if we can move forward on the feasibility stage of this pre-feasibility, into feasibility, at the same time as exploring new structures, we can increase the resource dramatically as well as push it towards the mine decision.

RITV: So your plan is to do exploration and move this toward the development phase. How are you going do that in terms of cash flow?

RS: Well, we have to raise money, so what we would be doing is raising a certain amount of money at current or slightly above prices, depending on how our marketing goes over the next several weeks and then as we continue to develop both this project, maybe do some exploration and work on the items that need to be done for the feasibility. We will do more marketing and we should be able to get our stock price reflecting the true value of the project and allow us to access more capital.

RITV: And being founder of the company, you’ve taken this from its infancy really, to a turning point in the company’s life.

RS: Yeah, it’s a very big milestone for me to be able to deliver this Preliminary Economic Assessment to our shareholders. It’s a good feeling, but I know there’s a lot more hard work to be done and I’m very confident of making it.

RITV: Well thanks for coming in and sharing that with us today, we really appreciate having you here

RS: I really appreciate talking with you.

RITV: Best of luck.