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Report from the annual meeting:

I’ve finally managed to put together a complete summary of the shareholder meeting. This is a combination of basic facts, plus my own observations and conclusions.

Friday- Mill tour and shareholder meeting:

Bus trip to mill, followed by tour. The mill is operating 24/7, and producing gold an silver. It is powered by twin gensets, one of which is a backup. Whoever said they hadn’t planned on enough power was speaking from ignorance. There are huge piles of ore in the yard. It is first run through the crusher we saw on the cam, and then moved to another pile. It is then put through the series of two hoppers and then into the mill. (I think the series of hoppers allows better control of the rate of sending ore into the mill.) I won’t go into all the operations, suffice it to say that after initial separations the final separation is conducted on the shaker table. The ore is ground to an extremely fine powder, which is why I think complete separation can be accomplished without cyanide leaching. The powder is too fine for any gold to be trapped in any particles- no leaching necessary. This can be seen on the shaker table- as the material moves across, it is completely separated into two streams- the lighter “sand” which flows over the ridges and down the table, and the darker thinner silver stream with a ribbon of gold inside it. If there were any “trapped” gold, those particles would be of intermediate density and would appear between the flows of sand and PMs. The gold and silver are collected at the end of the table. The gold is variable in color, some is orangish due to some copper (not separate copper, but an alloy of gold/copper). The silver is dark, since probably most of it is present as silver minerals, mainly acanthite, or silver sulfide- the same mineral we later saw in abundance in ore at the mines. The gold/silver concentrate is collected and saved for smelting. More on that later. The spent ore, which is now true “tailings”, is taken outside the gate behind a hill where it is spread out, covered with topsoil, and seeded with seed from native plants provided by BLM. Very clean and environmentally friendly operation. Note: posters who said the mill wasn’t running because they couldn’t see large piles of tailings in the yard were obviously speaking from ignorance. Water is provided by a well on site, and is recirculated, with the only losses due to evaporation. As discussed more in the meeting, the present setup is optimized at 40-70 tpd. The mill was previously running at the higher rates noted in a PR, but the rate was reduced to optimize recovery. It will now be ramped up while maintaining efficiency. The bottleneck now is the gravity concentrator (made by Falcon, and referred to as a “Falcon” by the people there). I think the problem is that not all the waste ore settles out of the water before it is reprocessed, maybe because it is so fine. Processing rates can be improved by adding more Falcons or improving water quality, maybe by using a larger sediment settling area. Either way, it is something that can and will be dealt with. SFMI plans to ramp up to 200 tpd (I think May). Note: The present milling equipment takes up less than half the building (most of one side). They plan to add a complete second circuit, which could easily be a much larger unit. Also note: The building itself is designed to be expandable. It can be lengthened in 20 foot increments to be as long as necessary.

Meeting: Much of what was said in the meeting has been covered. The only new information was the processing rate. It was an initial disappointment for many, but only because we were expecting numbers like those in the PR. SFMI’s operations are going extremely well, but their PRs need to be clearer and more straightforward. If we had not been given the bigger numbers, the fact that SFMI has moved to production would have been viewed as great progress, even at 40-70 tpd.

1. SFMI is still negotiating the smelter arrangements. They need to have some idea of the concentrate composition to do this, so I am sure they have conducted assays, and have a pretty good idea of what they have. But final numbers will not be known (or released) until after smelting. In the meantime,

2. SFMI is using the concentrate (over 1000 pounds of it) as collateral. They have plenty of cash, and are able to fund everything they need to do. If the concentrate is being used as collateral, then they (and the lender) obviously have a good idea what is in it. One implication of this is that the grades must be relatively high to fund everything at the present rate. There will be even more production as the mill rate increases and they use the higher grade ore.

3. SFMI is still planning a share buyback when the mill reaches the desired efficiency and rates.

4. SFMI is planning to produce PM coins to be sold at spot prices to shareholders.

5. The mill is owned free and clear.

6. SFMI will not be moving to the TSX or Bovespa soon. The TSX requires a 43-101 (which will be done at some point) costing ~$1M. The Bovespa just requires a $750k fee. SFMI has better uses for the money right now.

7. SFMI hopes to start mining in maybe a year and a half. This will begin with the rehab and updating of the Sinker Tunnel, which will start with improving ventilation. In the meantime, there are many years worth of tailings to process.

8. The next ore pile to be processed is the from the Oso adit of the Poorman mine, which is the one we visited Saturday. The other piles they have been processing are from other adits of the Poorman.

9. The present burn rate is just under $50k/month. Pretty amazing when you see everything they have done and are doing.

10. There should be no more major dilution since they do not need to raise cash. They may use stock as a hiring bonus. This should be more than made up for by the share buyback program.

11. As mentioned earlier, assays, grades, tonnages, etc., will be announced when appropriate.

The Q&A was brief, and not much new came out of it. SFMI is being very tight lipped about their results, and will not release any numbers until later. In the case of certain numbers such as the overall content of the concentrate, they simply won’t have the numbers until after smelting.

Afterwards, we were served steak and grilled chicken w/ sides. Lots of mingling, and everyone from SFMI was approachable and available to talk. You’ve probably read some of what was said and discussed in previous messages from other attendees.

Overall observations: The mill is working and producing. The setup is impressive, and designed for expansion. SFMI said the mill is very up-to-date, and I believe them. Water process, a product that looks very clean with no lighter material in it, environmentally friendly disposal. One local said that the only real topic at the permitting hearing was the question of the use of chemicals. Once it was clear it was water only, there were no objections. As will be noted later, the locals are pleased w/ SFMI for any number of reasons.

Saturday: Mine tour and Silver City tour:

We were taken in about half a dozen vans up to the mountain. Seeing the area first hand makes you realize just how amazing it is that anyone managed to accomplish anything up there in the 1800s. I can’t even imagine hauling up food for a week by mule, much less building equipment and materials.

SFMI has greatly improved the roads into the mountain. This was noted by a number of locals, who use the area for recreation (ATVs, hunting, etc.). They were quite happy with SFMI’s improvements. Another note- SFMI managed to find existing roads up to the ore piles they want to work. This avoids the problem of getting permits for new roads, which can be hard to come by. Improving existing roads is no problem. One of the reasons SFMI has gotten to production so quickly is that the roads and mines are pre-existing, so getting permits is much less of a problem.

First real stop: Sinker tunnel. Evidently it had been planned to take us in, but it was nixed by safety inspectors. Nevertheless, we looked around, saw the abandoned building nearby, and poked around in the piles of ore near the tunnel. Took as many samples as we liked. The ore is mostly granite, but heavily mineralized. (No limestone to be seen!) Lots of silver minerals obvious, especially since the rocks tend to cleave along the mineralized layers. This means you had lots of rocks with an entire face of mineralized silver (acanthite). The gold is mostly dispersed as fine particles.

On to the next stop, the Oso adit of the Poorman mine. The Poorman has a number of entrances, and the piles of ore mentioned in the PRs (the 0.75 and 2.45 oz/t ones) are from two other adits (entrances), the Belle Peck and Cumberland. The Oso pile is reportedly even better, at 3-4 oz/t. The ore here was even more mineralized. Glad I wore my cargo pants. The pile was maybe 8 stories high on the side of the mountain below the entrance (which we couldn’t get to). A couple of us did get about halfway up using a road on the side.

Next stop: Silver City. Silver City is an old mining town from the 1800s. Less than a hundred buildings still standing, used mostly as summer homes. Only a few year-round residents. We were served lunch in an old school house, and then walked around. It was the yearly open-house weekend, and SFMI provided us with tickets- $10 each, going to help preservation in the town. SFMI made a few more friends. The town itself was built over rich ore, with some of the buildings built on tailings piles. There was one pile in town that a local said was 36 oz/t, but it can’t be processed because the whole town is a historic site. Another local showed us a 1 oz gold nugget he found in the stream under a building he owned which used to be the sawmill.

End of tour.

Overall observations:

SFMI has built up an impressive operation. The mill is only part of it. They have also improved the roads and sites around the ore piles, are hauling down huge quantities of ore, and are beginning rehab of the sinker. They are also doing other work in preparation for heading into the mines.

All of the other attendees I talked to were also favorably impressed. They know the operation, especially the mill, is working and progressing. SFMI is working on their business plan methodically. They are producing gold and silver at a rate more than sufficient to fund their operations and expansion, and will be producing even more as they ramp up the mill, move to higher grade ore, and eventually get into the even better stuff in the mountain. Everyone who was there is planning either to hold or to increase their holdings. It should be noted that they were disappointed in the present rate, but only because it was less than they expected. But everyone came back more convinced than ever that SFMI is succeeding and more comfortable with their investment. It is impossible to convey the feelings and attitudes of those who were there to those who weren’t, but I hope this summary gives you an idea of what we saw and heard and experienced.