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Ouray Silver Mines Inc. <br /> Technical Revision 09 February 1,2017 <br /> 3 Project Rationale <br /> The facility upgrades proposed in this TR will improve mine functionality by improving ore <br /> recovery,updating water quality monitoring requirements, facilitating winter operations, <br /> improving safety,protecting equipment, and easing spatial constraints on the placement of <br /> materials and employees. A more detailed rational is provided for each proposed improvement <br /> in this section. <br /> 3.1 Mill Upgrades <br /> Mill upgrades are necessary to improve ore recovery and bring the mine back into full <br /> production. Within the crushing circuit, the existing cone crusher often clogs with fines, driving <br /> the need for jaw crushers and a rod mill instead. The existing cyclone circuit was poorly sized to <br /> achieve the correct operating pressure given the expected tonnages;the proposed screens are not <br /> reliant on pressure. Changes in the floatation system are needed based on the metallurgical <br /> testing results,which show that changes in reaction time and reagents will improve ore recovery. <br /> 3.2 Mill Water Treatment and Discharge <br /> Currently, the mill is permitted as a no discharge facility. Water needed for mill operations is <br /> taken from the Revenue Tunnel discharge. Because of the significant challenges associated with <br /> operating a no-discharge mill, OSMI would like to install a treatment plant to treat up to 60 GPM <br /> of bleed water from the mill. A bleed stream from tailings thickener is proposed to be treated <br /> with a conventional media bed filtration plant. This treatment plant is currently being designed <br /> by Westech out of Salt Lake City to meet Permit groundwater discharge standards. The treated <br /> water will then enter the larger water management system for polishing, commingling and <br /> diluting in a much larger flow(-200-900 GPM) of water emanating from the underground <br /> workings before settling in the Mine Water Pond and flowing through the bioreactive bed. The <br /> settled water then flows through a manifold and into a bed of crushed limestone and peat. <br /> Limestone works to reduce formation of metals through the formation of carbonate precipitates <br /> and serves as a pH buffer,though the water is circumneutral already. The peat provides a <br /> substrate and carbon to facilitate sorption of metals and reductive reactions to further reduce <br /> metals concentrations. Water then infiltrates to groundwater. This system was built to ameliorate <br /> water quality during operations and into closure with minimal maintenance.Ultimately,water <br /> flowing though the water management system infiltrates to groundwater. All storm water <br /> entering sediment pond#2,which is the location of the passive treatment system will also <br /> discharge to groundwater. <br /> 3.3 Water Quality Monitoring Update <br /> The permitting of the water management system in TR 08 and the proposed treated mill water <br /> discharge in this submittal,trigger the need to readdress water quality monitoring. OSMI <br /> envisions several changes based on the implementation of TR 08 and the Mill discharge <br /> treatments proposed herein. Map 1 presents the groundwater monitoring stations. Map 2 shows <br /> underground water monitoring locations. The location details,parameter lists,and sampling <br /> frequencies are presented in Tables 3—6. Additional discussion occurs in subsequent sections, <br /> proposed changes are presented immediately below. <br /> Page 4 of 14 <br />