XBG + XHP Projects

Introduction

In August 2011, Silvercorp acquired control of the XBG silver-gold-lead-zinc (Ag-Au-Pb-Zn) mine in the Henan Province of China. In November 2011, Silvercorp acquired control of the XHP Ag-Au-Pb-Zn mine, located just 6 kilometers northwest of the XBG mine. Both mines are located about 120 km southeast of Silvercorp’s flagship Ying mine and approximately a 3 hour drive from Luoyang City.

The acquisition of the XBG & XHP projects furthers Silvercorp's intention to consolidate mines and prospective projects in the high-grade silver, gold and base metal belt in the Southwest Luoyang City district. Silvercorp has established itself in the region as an effective explorer and developer, with a good brand name and has become the largest non-state-controlled company and one of the top tax payers in Luoyang City. This has been instrumental in gaining and building the full support of city, county and provincial governments.

Ownership

XBG
Silvercorp, through its 77.5% owned subsidiary Henan Found, acquired a 90% equity interest in Zhongxing Mining Co. Ltd. (“Zhongxing”) and Chuanxin Mining Co. Ltd. (“Chuanxin”), two local private mining companies in Luoyang City, Henan Province which are owned by the same owners.

Zhongxing’s main assets include the high grade XBG silver-gold-lead-zinc (Ag-Au-Pb-Zn) mine with a mining permit covering 26.36 square kilometers (km²) area expiring November 2022 and the adjacent NTM gold exploration permit covering 2.54 km². Chuanxin’s main assets include a 350 tonne-per-day (“t/d”) floatation mill and associated tailing management facility built in 2010 within the mining permit area, and an environment permit to construct a 1,000 t/d floatation mill.

The total cash payment of this acquisition of both companies is approximately US$10.4 million for Henan Found, which includes US$4.3 million cash payment for equity interest and US$6.1 million cash payment for debt.

XHP
Silvercorp, through its 77.5% own subsidiary Henan Found, acquired a 100% equity interest in the SX Gold Mining Company, a Luoyang City government controlled company. SX Gold operates the XHP silver-gold-lead-zinc mine which includes a 14 km² mining permit and a 500-tonne-per-day flotation/CIL mill. In addition, SX Gold also owns the HGDG gold exploration permit of 4.45 square kilometres and owns a 51% interest in the PLS gold exploration permit covering 3 square kilometres.

The total acquisition consideration payable by Henan Found for SX Gold is approximately US$22.75 million. A payment of $19.6 million has already been made, with the balance due upon completion of the share transaction and the transfer of the mining and exploration permits to Henan Found.

History

XBG
The XBG mine area was subjected to artisanal mining for gold and silver since the late 1980s. Exploration activities were limited to regional scale surface mapping, 1:50,000 scale stream sediment geochemical survey, and minimal surface trenching. No drilling was performed on the property, therefore, no resource was defined.

Zhongxing carried out exploration/mine development and small scale tunnel mining since the mining permit was issued in November 2010. By the end of July 2011, a total of 4,500 meters of mine tunnels and several shallow shafts were developed in the mine area. Based on Zhongxing’s record, over 20,000 tonnes of silver-lead-zinc ore were mined and about 12,000 tonnes of ore was milled by the 350 tonne-per-day flotation mill. Metal recoveries from the test milling were reported to be over 90% for silver and lead and 80% for gold and zinc.

XHP
Over the last two years, SX Gold has focused on mining oxidized gold ore near surface. The oxidized ores were treated by the 500 tonne-per-day CIL circuit to recover gold only. Last year, a flotation circuit was installed to recover lead-silver concentrate from the partially oxidized gold ores after gold is recovered through the CIL circuit. Mill recoveries were reported as 75% for gold, 70% for silver, and 60% for lead.

During 2011, SX Gold records show approximately 50,000 tonnes of less oxidized silver-gold-lead-zinc ores were mined from Vein K13 at the 577metre (m), 540m, and 500m levels through main access tunnel PD1 at XHP East.

Geology

The XBG & XHP project areas are situated in the east extension of the Qinling Mountain Belt near the margin of the Northern China Craton in the same regional mineralization belt as the Ying Mining Camp. This one of the largest silver-gold and base metal belts and largest silver producing region in China. The XBG & XHP project areas are underlain by Middle Proterozoic andesite flows interbeded with minor thinly bedded rhyolite, which have been intruded by Mesozoic granitic stocks. Mesothermal-style silver-gold-lead-zinc mineralization is hosted by NNE, NEE, and NW trending ductile shear structures which occur along a southeast margin of large granitic plutons that extends over 40 km long that featured by overlapping extensive silver-lead-zinc-gold soil anomalies.

XBG
So far, 12 mineralized Ag-Au-Pb-Zn veins/structures and three Au veins were identified by surface mapping, trenching, and tunneling. The Ag-Au-Pb-Zn mineralization is hosted in quartz-sericite-chlorite-carbonate- fluorite veins cross-cutting Proterozoic age andesite flows. The vein system trends NNE, NEE, and NW with a steeply (62-86°) dip and extends a few hundred meters to over 2,000 meters (m) along strike and up to 210 m along the dipping direction with true width ranging from 0.2 to 3.8 m. The veins contained 14 to 856 grams per tonne (g/t) Ag, 0.10 to 63.18 g/t Au, 0.15 to 36.17% Pb, and 0.10 to 15.33% Zn.

Silvercorp’s geologists visited the property three times in June and July, 2011. During the site visits, over 35 channel and bulk samples were collected from five actively mined veins and highlights of assay results are listed below.

XHP
The XHP project area is divided into XHP West and XHP East, which is separated by a third party’s gold mining permit (Dianfang Gold Mine, reported containing approximately 300,000 ounces of non-NI 43-101 compliant gold resources). There are 11 silver-gold-lead-zinc veins (veins K5, K6, K7, K8, K10, K13, K13-1, K16, K17, K18, and K21) at the XHP East while at the XHP West, there are 7 gold-silver-lead veins (veins K1, K2, K3, K9, K11, K12, K23) and one gold eruptive breccia pipe (K9). There mineralized veins and eruptive breccias pipe were identified by surface mapping, underground tunneling and surface diamond drilling.

Mineralization is hosted in a set of quartz-sericite-chlorite-carbonate veins cross-cutting Proterozoic age mafic volcanic flows. The system consists of quartz-carbonate veins with silver-gold-lead-zinc mineralization trending NNE, NEE, N-S, and NW with a steeply (51-89°) dip and extend a few hundred meters to over 2,000m along strike and up to 450 m along the dipping direction with true width ranging from 0.1 to 6.5 m for the veins and 1.0 to 20 m for the eruptive breccia pipe. SX Gold exploration records show the veins contained 20 to 1,224 grams per tonne (g/t) silver (Ag), 0.10 to 11.17 g/t Au, 0.50 to 27.47% Pb, and 0.30 to 12.09% Zn.

Silvercorp’s geologists visited the property three times from October 2010 to July 2011. During the site visits, a total of 16 check samples were collected and assay results are listed below in Table 3.

Table 3: Silvercorp’s Check Assay Results

Exploration

Exploration programs will be carried out at both projects and are expected to be financed through cash-flows from mine operations. At XBG, a comprehensive exploration program that includes surface and underground mapping and systematic sampling, and surface and underground diamond drilling will be carried out to explore the existing veins and discover additional veins. At XHP, Silvercorp will carry out an exploration program immediately, including tunneling and surface and underground diamond drilling, with a goal of defining a NI43-101 compliant mineral resources.

Mining & Milling

Silvercorp intends to resume mining activities at the XHP mine to stockpile ores pending installation of a second flotation circuit to enable the mill to generate a gold-silver-lead concentrate and a zinc concentrate. The mill upgrade is expected to be completed and in operation by February 2012.

Myles Gao, P. Geo, a Qualified Person on the project under NI 43-101, has reviewed an given consent to the technical information disclosed.

Last updated November 21, 2011