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Quarterly Updates

Third Quarter 2017 Operating Highlights

The Company completed two key programs during the third quarter of 2017: an update to the Mineral Resource estimate for the Filo del Sol Project and completion of the second phase of metallurgical testwork. Filo Mining incorporated the results of these two programs into an internal concept study of development options for the Project, which ultimately supported the undertaking of a formal preliminary economic assessment (“PEA”) on the Project. Details on these various third quarter developments are provided below.

Update to Mineral Resource Estimate (see news release dated August 21, 2017)

Following the successful completion of an 8,616 metre drill program in March 2017, the Company reported a significant increase to the Filo del Sol Project’s Mineral Resource estimate. With an effective date of July 1, 2017, the overall Mineral Resource was increased by 61% to 373 million tonnes Indicated, plus 239 million tonnes Inferred, containing 2.8 billion pounds of copper, 4.0 million ounces of gold and 109.9 million ounces of silver in the Indicated category, and 1.4 billion pounds of copper, 2.5 million ounces of gold and 60.0 million ounces of silver in the Inferred category.

With respect to the conversion of Inferred material to the Indicated category, the Company achieved a conversion ratio of 98%, resulting in 61% of the updated Mineral Resource falling within the Indicated category, matching the overall increase to the Mineral Resource itself. Most of the increase in the Mineral Resource comes from the Tamberias zone, which is included in the Mineral Resource estimate for the first time. Tamberias is located 1 kilometer south and is contiguous with the main Filo deposit. In addition, drilling this past season has greatly expanded both the size and grade of the oxide gold mineralization in the Filo deposit to the point where it is now significant enough to report on its own.

More importantly, based on metallurgical testwork completed to date, the Mineral Resource has now been divided into four distinct zones based on metallurgical characteristics, around which process designs have taken place within the scope of the PEA. The uppermost strata is a gold oxide (AuOx) zone, followed by a copper-gold oxide (CuAuOx) zone, both of which may be amenable to heap leach processing. The third layer is a silver (Ag) zone, and lastly, there is an underlying copper-gold sulphide zone.

Details of the updated Mineral Resource estimate are summarized in the following table:

Zone Cutoff Category Tonnes Cu Au Ag lbs Cu Ounces Au Ounces Ag
(millions) (%) (g/t) (g/t) (millions) (thousands) (thousands)
AuOx 0.20 g/t Au Indicated 52.5 0.05 0.42 3.0 59 710 5,060
Inferred 31.7 0.08 0.36 2.4 57 368 2,470
CuAuOx 0.15 % CuEq Indicated 175.3 0.42 0.29 2.8 1,636 1,630 15,530
Inferred 94.7 0.30 0.30 2.3 624 924 6,970
Ag 20 g/t Ag Indicated 36.5 0.52 0.41 69.5 421 485 81,600
Inferred 17.0 0.40 0.43 78.9 149 235 43,130
Sulphide 0.30 % CuEq Indicated 108.6 0.28 0.32 2.2 658 1,129 7,690
Inferred 95.5 0.29 0.32 2.4 612 983 7,420

Total

Indicated 372.9 0.34 0.33 9.2 2,774 3,954 109,880
Inferred 238.9 0.27 0.33 7.8 1,442 2,510 59,990

Completion of Second Phase of Metallurgical Testwork (see news release dated September 25, 2017)

Subsequent to positive bottle roll leach results from late 2016, a comprehensive second phase metallurgical testwork program was conducted throughout 2017 by SGS Canada Inc. in Lakefiled, Ontario on behalf of the Company, which was completed during the third quarter of 2017.

The program focused on the testing of gold oxide and copper-gold oxide material collected from the main Filo deposit during the 2016/2017 exploration season under column leaching conditions, as well as material gathered from the silver zone. Testing was conducted separately for each of these three types of mineralization, and highlights are as follows:

Gold Oxide Zone: 

Test Method Two cyanide column leach tests on material crushed to 1.5” and ¾”
Average Recoveries - Gold: 92.8%
- Silver: 69.8%
Other Observations - No significant impacts from varying crush size
- Rapid leach kinetics, with over 90% gold recovery within first 15 days
Variability Testing Results Seven coarse bottle roll tests (minus 10 mesh) averaged:
- Gold: 92.8%
- Silver: 39.0%

Copper-Gold Oxide Zone:

Test Method Two sequential column leach tests on material crushed to 1.5” and ¾”
Average Recoveries - Copper: 81.9%
- Gold: 86.7%
- Silver: 70.8%
Other Observations - Copper leaching required minimal sulfuric acid; copper in test material often water soluble
- Rapid leach kinetics, with over 80% copper recovery within first 15 days of acid leaching, and over 80% gold recovery within first 15 days of cyanide leaching
Variability Testing Results Five sequential coarse bottle roll tests (minus 10 mesh) averaged:
- Copper: 92.2%
- Gold: 88.2%
- Silver: 59.9%

Silver Zone:

Test Method - Sequential bottle roll test1 (minus 10 mesh)
Recoveries - Copper: 60.8%
- Gold: 63.5%
- Silver: 72.8%

1 Silver zone material for metallurgical testing was collected from reverse circulation drill cuttings, which were not coarse enough for column testing, and for which only sequential bottle roll testing could be performed.

Undertaking of PEA (see news release dated September 19, 2017)

Supported by the positive milestones achieved during the quarter, as discussed in the preceding sections, the Company commissioned the undertaking of a formal, independent PEA of the Filo del Sol Project. The Company hired SRK Consulting (Canada) Inc. to lead the PEA, which is based on the updated Mineral Resource estimate and contemplates open-pit mining and heap leach processing of the oxide portions of the Resource. The PEA is now substantially completed, and the Company expects to release the results of this independent assessment shortly.

OUTLOOK

Guided by an experienced board of directors and management team, Filo Mining is focused on advancing the Filo del Sol Project. The Company has now substantially completed a PEA on this flagship asset, and the results of this independent assessment will be released shortly.

In addition, the Company has recently begun its next work program for the 2017/2018 field season at the Filo del Sol Project, which coincides with the South American summer. This program, as currently designed, will collect the data anticipated to be required to support the undertaking of a Pre-Feasibility Study (“PFS”) for completion by as early as the end of 2018, should it be decided that such a study be undertaken. The current design of the field work program includes reverse circulation and diamond drilling for resource conversion, metallurgical sample collection and geotechnical information, as well as infrastructure site investigations and ongoing metallurgical and environmental studies. The actual undertaking of a PFS, and the nature and amount of data that would be collected during the 2017/2018 field season to support a PFS, if undertaken, is contingent upon the analysis of, and the recommendations arising from, the PEA.

Second Quarter 2017 Operating Highlights

During the second quarter of 2017, the Company focused on the interpretation of data from the 2016/2017 field program, which focused on infill and step out drilling on the Filo del Sol deposit.

The complete assay results of this program, which consisted of 8,616 metres of reverse circulation drilling in 41 holes, were received during the second quarter of 2017 (see news releases dated April 10, 2017 and May 17, 2017). Select highlights of these results are as follows:

  • Drilling expanded and better defined the oxide gold zone of the Filo del Sol deposit, and increased the dimensions of this zone to approximately 700 metres north-south by 350 metres east-west. Highlights from the drilling in oxide gold zone included: 112 metres at 0.73 g/t gold in VRC101 and 42 metres at 1.04 g/t gold in VRC132;
  • Better definition of the high-grade copper oxide zone of the Filo del Sol resource. Highlights included: 60 metres at 1.01% copper, including 26 metres at 1.56% copper, in VRC100; and 71 metres at 2.06% copper, including 30 metres at 3.03% copper, in VRC125;
  • Confirmation of a high-grade, flat-lying, straitform silver-rich zone underlying the copper oxide zone in most areas of the Filo del Sol deposit. Highlights included: 34 metres at 138.1 g/t silver, including 16 metres at 227.5 g/t silver, in VRC100; and 34 metres at 285.1 g/t silver, including 16 metres at 565.1 g/t silver, in VRC132;
  • Follow up drilling at the Filo South target, located approximately 1 km south of the Filo del Sol deposit, has resulted in better definition of this target over an area of 1,000 metres north-south by 500 metres east-west, and demonstrated that it is contiguous with the Filo del Sol deposit. Three new mineralized zones were encountered in this season’s drilling at Filo South:
    • A shallow oxide copper zone which is highlighted by intersects of 102 metres at 0.77% copper and 54 metres at 1.01% copper in VRC111, 50 metres at 0.81% copper and 0.41 g/t gold in VRC110, and 66 metres at 0.63% copper in VRC119;
    • An oxide gold zone which extends from surface to an average depth of approximately 100 metres, and is highlighted by intersects of 94 metres at 0.56 g/t gold in VRC109, and 100 metres at 0.57 g/t gold, including 28 metres at 0.80 g/t gold in VRC134.
    • A new area of copper-gold mineralization, which was initially discovered by hole VRC103, intersecting 40 metres at 1.00% copper and 0.31 g/t gold. Follow up drilling at this location was successful in intersecting 16 metres at 0.87% copper and 0.32 g/t gold in VRC128.

  • Approximately 2.8 tonnes of material from the oxide gold and copper zones were collected and submitted to SGS Lakefield’s laboratory for column leach testing, which will provide information on the optimum fragment size for leaching and more information on how the mineralized material will behave on a leach pad.Additional material from drill samples was also submitted for testwork on the silver zone. Completion of the testwork is targeted for the third quarter, 2017.

OUTLOOK

With an experienced board of directors and management team, and a treasury of approximately $7.3 million as at June 30, 2017, Filo Mining is well positioned to advance the Filo del Sol Project.

The Company expects to complete the updated resource estimate for the Filo del Sol Project in the third quarter, 2017. The second phase of metallurgical testwork, which follows up on the encouraging initial results received in October 2016, is also targeted for completion in the third quarter, 2017.

Once the results are received from the current metallurgical test program, the Company will combine the information with the updated Mineral Resource estimate in order to prepare a preliminary internal conceptual study of development options for the Filo del Sol Project. This internal study is expected to be completed towards the end of the third quarter of 2017 and will allow the Company to decide whether to initiate a formal preliminary economic assessment (“PEA”) of the Filo del Sol Project. If a PEA is initiated for the Filo del Sol Project, the related technical report would be targeted for completion by the first quarter of 2018.

First Quarter 2017 Operating Highlight

During the three months ended March 31, 2017, the Company focused on carrying out the 2016/2017 field program, which was aimed at furthering understanding of conceptual development options for the Filo del Sol deposit, while continuing to evaluate the compelling exploration potential of the property.

This program, which was successfully completed in March 2017, included the collection of representative sample material for ongoing metallurgical testing and 8,616 metres of reverse circulation drilling in 41 holes. The objectives of the drill program included conversion of Inferred resources to the Indicated classification, expansion of the current resource, and testing a number of high-quality exploration targets within 2 km of the Filo del Sol deposit, including:

The Filo South target, which is located approximately 1 km south of the deposit. Surface mapping and sampling in this area has defined a northwesterly-trending gold +/- copper bearing zone of strong silicification, quartz vein stockwork and breccia with minimum dimensions of 1,000 metres along strike by 200 metres wide. Wide-spaced historical drilling did not test this zone, however, surface trenching across it in 2016 returned 114 metres of 0.85% copper and 0.35 g/t gold.

The Cerro Vicuña target, a distinct conical hill located 1 km southeast of the deposit, and immediately to the east of the Filo South target. Surface mapping shows this hill to be underlain by a silicified and stockwork porphyry intrusive, the Vicuña Porphyry, with grab samples of up to 5 g/t gold collected from surface. The hill is covered by an extensive copper and gold surface geochemistry anomaly and is characterized by an alteration zonation and geophysical signature characteristic of porphyry deposits. This target had never been previously drilled.

Assay results from 24 of the 41 total drill holes from the 2016/2017 drill program have been received to date, and include the following highlights:

  • Confirmation of higher grade zones within the oxide gold zone that forms the upper part of the current resource (see News Release dated February 15, 2017). The assay results include intersects of 84 metres at 1.36 g/t gold in VRC097 and 78 metres at 1.02 g/t gold in VRC099, representing the best and third best gold intersections in the Filo del Sol deposit to date (gold grade times width);
  • Expansion of the oxide gold zone of the current Filo del Sol resource, as a result of infill holes (see News Release dated April 10, 2017). Assay results to date have been highlighted by an intersection of 112 metres at 0.73 g/t gold in VRC101;
  • Confirmation of the high-grade copper portion of the Filo del Sol resource, with intersections in infill holes of 20 metres at 1.13% copper in VRC097 and 20 metres at 1.91% copper in VRC099; and
  • Identification of a potential new zone of shallow oxide copper and gold mineralization at the Filo South target (see News Release dated April 10, 2017). The assay results received to date include intersects of 102 metres at 0.77% copper and 0.35 g/t gold in VRC111, 50 metres at 0.81% copper and 0.41 g/t gold in VRC110, and 66 metres at 0.63% copper and 0.35 g/t gold in VRC119.

CORPORATE UPDATE

The Company appointed Mr. James Beck as the Company’s Vice President, Corporate Development and Projects effective February 1, 2017. Mr. Beck is a registered Professional Engineer in the province of Ontario, holds a Bachelor of Applied Science from Queen's University and an MBA from the University of British Columbia. Mr. Beck also serves as the Vice President, Corporate Development and Projects of NGEx, an exploration company listed on the TSX and Nasdaq Stockholm. Prior to his appointment, Mr. Beck was the Company’s Director, Corporate Development.

OUTLOOK

With an experienced board of directors and management team, and a treasury of approximately $11.6 million as at March 31, 2017, Filo Mining is well positioned to advance the Filo del Sol Project while also remaining flexible and responsive to continuing volatility in the resource sector.

The 2016/2017 exploration program was successfully completed in March 2017 and included 8,616 metres of a mix of infill and exploration drilling in 41 holes. Assay results relating to the first 24 holes have been received (see First Quarter 2017 Operating Highlights section above), and the Company will receive the assay results of the remaining 17 holes in the coming weeks. These new drill results will:

  • Allow the Company to update the resource estimate for the Filo del Sol Project;
  • Provide better understanding of the geometry and extent of the oxide gold zone of the current resource, which currently measures approximately 700 metres by 250 metres, and remains open to the north; and
  • Confirm the potential of the Filo South target, located approximately 1 km south of the Filo del Sol deposit, where the Company has discovered new shallow oxide copper and oxide gold mineralization.
  • In addition, Filo Mining is currently conducting a more extensive program of metallurgical testwork to follow up on the encouraging initial results received in October 2016. The Company plans to complete column leach tests which will provide information on the optimum fragment size for leaching and more information on how the mineralized material will behave on a leach pad. This information, together with an updated resource estimate, is expected to provide the information needed for a preliminary internal conceptual study of development options. This internal study is expected to be completed towards the end of the third quarter of 2017 and will allow the Company to decide whether to initiate a formal preliminary economic assessment (“PEA”) of the Filo del Sol Project. If a PEA is initiated for the Filo del Sol Project, the related technical report would be targeted for completion by the end of 2017.