The Company’s focus on its Dawson gold property continues to be focused on activities to generate the necessary data to support the completion of a mining permit application for submission to the State of Colorado. On June 30, 2021, the Company filed an application for a mining permit with the Colorado Division of Reclamation and Mine Safety (“DRMS”). On October 14, 2021, Zephyr received a response from DRMS outlining a list of issues pertaining to the application for which it required more information and clarifications. Zephyr provided DRMS with responses to these issues on February 9, 2022 to which DRMS further responded on March 23, 2022 outlining issues to be further addressed and clarified. The principal issues pertain to water monitoring wells and related sampling methodology, mine pool water, reagent storage, Grape Creek potential impacts, environmental protection facilities and technical matters pertaining to certain design details. Zephyr is required to drill five groundwater monitoring wells over and above those previously drilled as well as one compliance well. DRMS requires that the additional wells have five quarters of monitoring and sampling data before they can consider approving the mining permit application. This is expected to delay a further review of the application until at least late 2023. See News Release of March 28, 2022 for additional information. The Company withdrew the mining permit application to allow for the required time to drill and monitor the wells for the required five quarters. Once this program is completed, the mining permit application will be resubmitted, the timing of which is currently unknown and remains subject to funding to drill the required holes.

Upon Zephyr satisfying all of DRMS’ technical requirements in the application, the Company, supported by DRMS, will then seek approval for the mining permit from the Mined Land Reclamation Board (“MLRB”). Following approval by the MLRB, a Conditional Use Permit (“CUP”)

 

Dawson - Background

 

Dawson is comprised of 57 contiguous unpatented lode mining claims, eight patented lode mining claims and two patented placer claims covering approximately 505 hectares (1,249 acres). Dawson encompasses five contiguous gold mineralized areas over a strike length of 3.8 km which are, from east to west: Sentinel, Dawson, Copper King, Windy Gulch and the Windy Point zones. The inferred gold resources identified to date at Dawson are confined to the Dawson and Windy Gulch zones with the remaining three zones representing gold prospective areas on the geologically favourable trend. Surface rights total 301 acres and are sufficient for the current mine development plans. The 50% of the eight patented lode mining claims not held by Zephyr is leased by Zephyr through a “Mining Lease and Agreement”, and the 50% interest in the placer claim not held by Zephyr is leased through a property lease agreement, which effectively gives Zephyr 100% control of these claims. Twenty-one of the 51 unpatented claims and the eight patented lode mining claims are subject to a sliding scale Net Smelter Return (“NSR”) whereby Zephyr agrees to pay up to a 3% NSR as contemplated in the Mining Lease and Agreement.

 

The NI 43-101 compliant resource estimate was completed on the Dawson and Windy Gulch zones at the Dawson section in 2013. The resource estimates were disclosed in the technical reports on Dawson entitled “Resource Estimate Technical Report for the Dawson Property Fremont County, Colorado, USA” with an effective date of July 19, 2013 and “Updated National Instrument 43-101 Technical Report for the Dawson Property, Colorado, USA” with an effective date of August 26, 2015. The Dawson zone resource estimate was utilized in the completion of a Preliminary Economic Assessment in 2017 entitled “National Instrument 43-101 Technical Report for the Dawson Property, Colorado, USA” with an effective date of March 21, 2017.

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The potential for increasing resources at the Dawson section is considered very good with identified drill targets below the current inferred gold resource at the Dawson zone, at the Sentinel zone to the east and the Windy Gulch and Windy Point zones to the west. If the Company is successful in obtaining the mining permit for Dawson, the next step, subject to funding, is the construction of a ramp to access the Dawson gold deposit and to establish underground drill stations from which to conduct infill drilling on the current inferred gold resource and to test deeper targets for additional gold mineralization.

 

The gold mineralization at Dawson was discovered by U.S. Borax Ltd. in the early 1980’s and explored by Uranerz U.S.A. Inc. in the early 1990’s. During this period a total of 142 diamond drill holes for 27,206 metres were drilled, from which several resource estimates were completed. In 2013 Zephyr commenced a diamond drill program on the Windy Gulch zone. The 13 hole diamond drill program of approximately 580 metres was designed to expand and better define the near-surface gold resource. The drill results were incorporated with historical drill data to calculate the first independent NI 43-101 resource estimate on the Dawson and Windy Gulch zones. The resource estimates were disclosed in the technical report on Dawson entitled: “Resource Estimate Technical Report for the Dawson Property Fremont County, Colorado, USA” with an effective date of July 19, 2013.

 

The qualified person for this page for the purposes of National Instrument 43-101 is Terry Coughlan, P.Geo.. He has read and approved the scientific and technical information that forms the basis for the disclosure contained herein.

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