Cap-Oeste

The El Tranquilo Property Block is situated approximately 65km southeast of Bajo Caracoles in Santa Cruz Province, and contains the Cap-Oeste Project and a number of other significant prospects including the Breccia Valentina and the Vetas Norte trend. Good access is available to all these areas which are less than 3 hours drive from Perito Moreno. Cap-Oeste and Breccia Valentina are situated approximately 6km apart within an approximate 8km wide x 10km long window of variably clay-silica-Fe oxide altered Chon Aike volcanic rocks. This regional scale window of alteration is surrounded by Tertiary cover rocks which postdate the timing of alteration and related mineralization NW trending regional scale, structural corridor. This corridor is defined by multiple sub parallel zones of hydrothermal and fault brecciation, epithermal veining and pervasively developed high level style alteration and phreatomagmatically brecciated subvolcanic felsic domes.

The Cap Oeste Project is situated in the central portion of the El Tranquilo I MD exploration claim which is held 100 percent by PGSA, the Argentine subsidiary of Patagonia Gold Plc. An agreement exists between PGSA and the previous owners, Barrick Exploraciones S.A. and Minera Rodeo S.A., both subsidiaries of Barrick Gold, for 2.5% net smelter return royalties upon production. In accordance with the original agreement, PGSA has fulfilled all its investment commitments.The El Tranquilo I MD exploration claim is one of several claims in PGSA’s El Tranquilo project block. Another drilled prospect area called “COSE”, is located on the same MD exploration claim, centered approximately 1.5 kilometres to the southeast of the Cap Oeste prospect. COSE is the subject of a separate Technical Report.

The Cap Oeste property is located in the northwestern part of the Deseado Massif, in Patagonia, southern Argentina. This province is characterized by a sequence of Middle-to-Upper Jurassic volcanic rocks which are partially covered by Cretaceous volcaniclastic sediments, and by later Tertiary to Quaternary flood basalts and fluvial-glacial sedimentary cover. Widespread epithermal mineralization is hosted by the Jurassic rocks, specifically the Chon Aike and La Matilde Formation bimodal volcanic suites.Precious metal mineralization at Cap Oeste is spatially related to a curvilinear, west northwest trending structure, termed the Bonanza Fault. The fault dips steeply to the southwest and has been mapped over a strike length exceeding 2.5 kilometres. Mapping peripheral to the main zone of mineralization at Cap Oeste has defined a second, sub-parallel structure 220 meters to the southwest, referred to as the Esperanza Fault. Described as a steeply northeast-dipping zone of faulting and hydrothermal brecciation, the Esperanza Fault has been mapped over a strike distance of approximately 1,500 meters. The opposing dips of the Bonanza and Esperanza faults, together with mapped repetitions and displacements of stratigraphy across these structures suggest the presence of a northwest trending graben or half-graben, approximately 220 meters wide at surface.

Exploration has focused on establishing a core resource in the area of exposed epithermal mineralization. Sawn channel samples from PGSA trenching adjacent to historic Barrick excavations confirmed the presence of an 8 to 25-meter wide zone of stockworked and crackle-brecciated vitric tuff in the hangingwall of the Bonanza Fault, reporting values of the order of 0.3 to 1.0 parts per million (ppm) Au. The fault zone proper contains limonite-hematite rich milled breccia with up to 11 ppm Au over widths up to 8 meters. Further trenches along strike defined a contiguous northwest trending, 900-meter-long by 5 to 15-meter-wide zone of stockwork veining, faulting, and brecciation with anomalous Au, Ag and trace element geochemistry (As, Sb, Hg). Subsequent geophysical, geochemical, and petrographic studies lent important support to these preliminary results, setting the stage for the follow-up drilling programs.Exploration conducted between 2007 and June 30, 2011 included surface sampling, trenching, ground geophysical surveys, petrologic studies, and 48,858 meters drilling in 295 holes. As a result of this work, PGSA has defined a significant Au-Ag epithermal deposit at Cap Oeste, and has made significant strides in understanding the geologic and structural controls to mineralization. CAM believes significant exploration potential remains at Cap Oeste and on adjacent exploration prospects controlled by PGSA.

Previous mineral-resource estimates were prepared by CAM in 2008 and by MICON in 2009, but neither report was filed in Canada, because Patagonia Gold was not a public company in Canada at that time. Both estimations were carried out in compliance with NI-43-101 standards.The resource model was prepared by Patagonia Gold, and was reviewed and edited by CAM. Modeling was carried out initially through the completion of a detailed sectional interpretation on plotted sections and subsequently digitized to create a solid geological grade constraining wireframe model. Vertical sections were created every 25m perpendicular to the strike of the Cap-Oeste mineralization. Grade- constraining polylines were digitized in 3D and snapped to non-composited original samples based on the cutoff and recovery parameters of Au and Ag in oxides and sulphides.Excellent continuity both along strike and down dip is seen in the Cap-Oeste mineralization model. Models were clipped to surface topography and oxide and sulfide levels were separated by a secondary profile delineating the depth of oxidation. Top cuts were not applied.

A block size of 5m x 5m x2.5m was chosen for the Cap-Oeste model, based on the tight drill spacing (25m x 25m average) for the deposit. Each rock type was assigned a separate block-model code and a partial model was built in GEMS to ensure that each rock type was assigned the correct tonnage from the wireframe model. Grade Interpolation was completed in 2 phases for both elements. Search ellipses were set up for each metal and each mineralization type, 6 in all.

The resources classified according to the criteria discussed above are shown Table 1-1.

CAM verified the results by running an unconstrained nearest-neighbor resource estimate using a different software system, in this case MicroModel. This check indicated that the PGSA model may be slightly conservative. CAM believes this conservatism is appropriate for a project at this level of development. On the basis of the review of the methodology, visual review of the model, and independent checks, CAM believes the model has been prepared according to accepted engineering practice and is suitable for initial reserve calculations.