Sac Initial Report

© RedChip Visibility, a division of RedChip Companies, Inc. | 500 Winderley Place, Suite 100, Maitland, FL 32751 | 1-800-RED-CHIP | www.RedChip.comFor analyst rating definitions, research coverage universe and other disclosures, please refer to page 37 of this report or write to [email protected]

TMTM

V i s i b i l i t yDiscovering ToMorrow’s Blue chips ToDay TM

COMPANY OVERVIE W

South American Silver Corp. (“SAC” or the “Company”) is an exploration stage mineral company engaged in the exploration and development of the 100% owned Malku Khota silver-indium project in Bolivia and the Escalones copper-gold project in Chile. The Malku Khota project is a world-class silver-indium deposit expected to commence production in 2014. Exploration activity at the Escalones project, a relatively early-stage property, has been restarted after being temporarily suspended. SAC’s senior management is vastly experienced in the global exploration and mining industry, primarily in South America (Bolivia, Chile, Peru and Argentina).

INVESTMENT R ATIONALE

SAC is an attractive asset play. SAC has a large existing silver resource base with good exploration upside. The Company has indicated silver resources of 144.6 million oz and inferred silver resources of 177.8 million oz, making it one of the largest undeveloped silver resources in the world. The Company also has indicated and inferred indium resource of 845 tonnes and 968 tonnes respectively. In addition to low operating costs of $3.75 per oz (net of byproduct credits) and low initial capital costs ($103.37 million), the ongoing exploration at Malku Khota covers only 25% of the project’s 15 km strike length, providing significant opportunity to expand the resource base.

Stock re-rating on transition from exploration to production. SAC’s current valuation (EV/oz of C$0.09) reflects its low market visibility and relatively recent development of its resource. Though the recent appointment of CEO Greg Johnson and increased investor outreach are positives for the stock, we believe the real value drivers will come from the following two chronologically successive events: 1) the successful transition from a resource definition and Preliminary Economic Assessment (PEA) stage to a feasibility study stage 2) the successful transition to a production decision (expected in 2014) or partners with/sells out to an industry major.

Based on comparable companies and past instances, the transition from resource definition to the feasibility stage can potentially increase valuation anywhere between 5x and 10x, depending on the success and speed of development. The subsequent transition to production or a partnership/sellout agreement with a major mining producer has a similar upside potential. Moreover, the potential

AnALySt Soumik Gosh

MARkET dATA

june 28, 2010 | TARGeT PRICe: C$3.20 | RATInG: SPeCuLATIVe BuY

South American Silver Corp. (TSX: SAC)

I n I t I a l R e p o R t

TICKER SaC.ToFISCaL YEaR dECEmbER

SECToRmETaLS mInInG &

ExpLoRaTIonRECEnT pRICE C$0.62TaRGET pRICE C$3.20maRKET Cap C$37.8m52-WEEK HIGH - LoW C$0.81 - C$0.29 pRICE/EaRnInGS (TTm) n/apRICE/booK (mRQ) 2.5xpRICE/SaLES (TTm) n/aSHaRES oUTSTandInG 61.0mFLoaT 53.3mavG daILY voLUmE (3 moS) 226,952InSIdER oWnERSHIp 12.6%

As of June 25, 2010

REvEnUE (TTm) n/aREv (TTm)pER SHaRE n/aQRTLY REv GRWTH YoY n/aGRoSS pRoFIT (TTm) n/aopERaTInG maRGIn (TTm) n/aEbITda -$1.8mnET InComE (TTm) -$1.8mdILUTEd EpS (TTm) -$0.03QRTLY EpS GRWTH (YoY) n/aCaSH & EQUIv (mRQ) $5.8mCaSH (mRQ) pER SHaRE $0.10ToTaL dEbT/EQUITY 3.4%booK vaLUE pER SHaRE $0.25RoE (TTm) n/aRoa (TTm) n/a

FINANCIAL dATA

RedChip Visibility | � | South American Silver Corp.

South American Silver Corp. (TSX: SAC)InItIal RepoRt

for this multiplier is particularly great in the case of SAC, since the potential for resource expansion through further drilling is significant. We therefore expect a valuation re-rating as the Company moves closer to the production stage (as per our analysis, EV/oz valuation of a silver producer is approx 2.2x EV/oz of a silver exploration company).

$4 million financing accelerates resource expansion. On June 18, 2010 the Company announced a $4 million “bought deal” private placement that will help accelerate resource expansion for the Malku Khota project. The financing will also enable SAC to resume drilling at Escalones and progress towards resource definition there. Under the terms of the deal, the underwriters take the entire risk of placement on their book. SAC will issue 6.35 million units at $0.63 each. Each unit comprises a common share and a warrant to purchase half of a common share at a strike price of $0.95. The underwriters also have the option to increase the offering by another $2 million at the same price per unit.

Substantially improved investment scenario in Bolivia. The Malku Khota silver-indium deposit is located in Potosi State, a silver mining district in central Bolivia. Three new silver mines—PanAmerican Silver’s San Vicente Mine, Coeur d’Alene’s San Bartolome Mine, and Sumitomo’s San Cristobal mine have came on stream in the last three years from this same region. Under the Evo Morales administration, Bolivia has become one of the fastest growing economies in the Americas, with tightly controlled inflation and a strong trade surplus. Owing to the substantial improvement from the previous administration, Moody’s has upgraded Bolivia’s sovereign rating from B3 to B2 while Fitch and S&P upgraded its ratings from B- to B which is also in line with the EIU’s country’s risk rating of B and positive outlook for the country.

Investment in silver is an effective inflation hedge. We believe the current macroeconomic environment makes the economics of precious metal exploration and mining extremely attractive. Investment in silver is viewed as an effective inflation hedge and a counter trade against the US dollar, which is expected to remain under pressure over the medium to long term due to unprecedented monetary easing and a weak economic recovery. Over the long term, this is expected to lead to higher budget deficits and inflationary pressures, supporting silver’s price.

Valuation. Our discounted cash flow valuation using a 15% discount rate suggests a net present value (NPV) of C$3.95 per share. Applying a price to net asset value (P/NAV) multiple of 0.8x to the discounted cash flows of SAC’s Malku Khota project derives our price target of C$3.20. Our price target does not assign a value to any resource expansion which may come when the Company issues a resource update possibly in 2011. Similarly, we haven’t valued the Escalones project since there not yet a resource definition and PEA. However, we do want to stress the further upside potential of SAC’s valuation once the Company advances its project through the development curve.

At an enterprise value of C$0.09 per oz, SAC trades at a steep discount to peers with similar silver reserve/resource profiles, such as Bear Creek (EV/oz of C$0.73), Minco Silver Corp (EV/oz of C$0.78) and MAG Silver Corp (EV/oz of C$1.45). We believe SAC’s current depressed valuation is due to a combination of low market visibility, a relatively new resource (released in the turbulent 2008 market) and a risk premium associated with SAC’s presence in Bolivia. Additionally, high project execution risk at the Malku Khota project given its early stage of exploration and production likely to start in 2014 at the earliest, are further tempering the stock. With improvement in Bolivia’s investment environment and ongoing resource expansion by the Company, we view investment in SAC at current valuations as an opportunity to build exposure to lucrative, early stage silver assets.



INVESTMENT HIGHLIGHTS

SAC is an attractive takeover candidate. Given the attractiveness of the precious metals space, exploration companies with good precious metals resource profiles are attractive takeover targets. The recently announced acquisition from Goldcorp of a similar size project by Tahoe Resources at an EV/oz of US$1.51 underscores this trend. The deposit is at an earlier stage compared to SAC’s Malku Khota and has no economic assessment to its credit yet. Being located in the emerging market country of Guatemala, it has a similar risk profile compared to Bolivia. This transaction gives a sense of the upside potential to shareholder value for early-stage precious metals companies, such as SAC. Assessing this transaction, we estimate a takeover valuation of C$3.30 per share, which is 5.3x the recent stock price (C$0.62).

Potential for resource expansion is significant. SAC’s current focus is on increasing drilling activity at the site and significantly expanding its resource base. The Company expects to provide an expanded resource estimate by late summer or early fall, following which it will undertake a preliminary economic assessment (PEA) by the end of 2010. SAC wants to continue resource expansion well into 2011 and file a pre-feasibility study by the end of that year, following which it will take the subsequent steps toward production. Given that current resource estimates are based on only 25% of Malku Khota’s 15 Km strike length, we see substantial upside to resource potential from here.

Malku Khota’s mining economics are very attractive. The Malku Khota project has indicated resources of 144.6 million oz and inferred resources of 177.8 million oz. The leachable resources can be extracted in a very cost efficient manner. Operating costs (net of credits) are estimated at US$3.75 per equivalent silver oz and initial capital costs at $103.37 million, resulting in a payback period of 1.4 years. Infrastructure along the site also plays a major role. The site is accessible by road, has a power source nearby and moderately warm climate.

Resumption of drilling at Escalones to be another positive for the stock. SAC is looking at its Escalones copper-gold project in Chile with renewed interest since Greg Johnson joined the Company. The Escalones deposit is located in a world-class copper district, and has a similar geological setting compared to El Tiente, world’s largest underground copper mine, which is located just 35 km east of the deposit. The property has access to road and water, and has a gas pipeline running across it. With the Company’s recent equity raise, SAC is set to resume drilling activities on the project and is targeting a resource definition by early 2011. This positive development will allow the Company to increase and diversify its asset base.

Strong management team. SAC has a strong management team lead by Greg Johnson, Company’s President and CEO. Greg Johnson is a geologist with over twenty years of experience in the mining industry. His prior experience at Nova Gold and Placer Dome gives SAC necessary expertise to drive the transition from resource definition through to the feasibility study stage. As one of the co-founders of NovaGold, Mr. Johnson was part of the team that took NovaGold’s market capitalization from $10 million to nearly $2 billion over a period of 12 years, through resource expansion and advancing its projects up the development curve through feasibility and toward production. He also played a key role in the multi-million–ounce Donlin Creek discovery, one of the largest gold deposits in the world. The SAC management team has extensive exploration experience in South America and is well supported by Ralph Fitch (Executive Chairman & Director). Ralph Fitch has over forty years of geologist experience in international exploration management and field work.



Silver is an effective inflation hedge. Investment in SAC provides exposure to silver with an embedded indium option. A weak global economic outlook coupled with long term inflationary concerns has made precious metals like silver and gold an extremely attractive asset class. Investment in silver is viewed as an effective inflation hedge and a contra trade against the U.S. dollar. The general expectation is that aggressive monetary easing by major central banks and heavy deficit spending by the U.S. and other major economies will lead to higher inflation and a weakened U.S. dollar over the long term.

INVESTMENT RISkS

Despite improved outlook, Bolivia’s geopolitical risk remains considerable. Presence in Bolivia increases SAC’s geopolitical risk due to the possibility of anti-industry policy decisions, including the imposition of higher taxes on mining companies. These concerns are hightened due to recent decisions by the government to repurchase formerly state-owned businesses such as utilities. However, we do note the improvement in the country’s investment outlook over the last few years under the Morales administration. On many measures, from dramatically reduced inflation rates to double digit trade surpluses and robust internal growth, Bolivia’s recent economic performance is the best it has been in over 30 years. Along with easing political tensions and healthy accumulation of foreign exchange reserves, the three main ratings agencies have all upgraded its sovereign ratings in the last year. Bolivia is also preparing to tap the international markets to finance a $32 billion infrastructure build-out plan in the next seven years.

Execution risk due to Company’s early stage of exploration. As per the timeline provided by management, SAC currently expects to release an expanded resource estimate and updated PEA by the end of 2010. We would then anticipate a pre-feasibility study by the end of 2011, followed by a feasibility study and permitting in 2012, which could lead to a production decision by the 2013-14 time frame. This 4-year lead time to production adds to the Company’s execution risk profile. Delays in advancing development projects are quite common, and it often leads to timelines being pushed out. Moreover, increasing environmental regulations have significantly increased production timelines for mining companies. Delays and execution risks can also arise from problems or failures in engaging the local communities. If such execution risks materialize, it can adversely impact investor sentiments and valuation.

Our target price is sensitive to silver prices. Silver prices have been highly volatile in the past. Recent silver prices have traded in the $17-19/oz range, well below their long term highs of $50/oz in 1980. From the onset of the financial crisis, prices have been supported by safe haven demand from investors (mainly through ETFs) though industrial demand has been soft. Historically silver’s volatility has been due to its dual correlation with gold (as a store of value) and base metals (for its industrial use). Though we are bullish about silver price in the long-run, we do note that if silver prices soften over a prolonged time frame, it will dampen SAC’s outlook. Our sensitivity analysis shows that with a $1 decline in silver price from our base case of $15 per oz, SAC’s NPV would decline by 9% to C$3.60 per share.

5

As per the timeline provided by the management, SAC currently expects to release an expandedresource estimate and updated PEA by the end of 2010. We would then anticipate a pre feasibility studyby end 2011, followed by a feasibility study and permitting in end 2012, which could lead to aproduction decision by the 2013 14 time frame. This 4 year lead time to production adds to theCompany’s execution risk profile. Delays in advancing development projects are quite common, and itoften leads to timelines being pushed out. Moreover, increasing environmental regulations hassignificantly increased production timelines for mining companies. Delays and execution risks can alsoarise from problems or failures in engaging the local communities. If such execution risks materialize, itcan adversely impact investor sentiments and valuation.

Our target price is sensitive to silver prices

Silver prices have been highly volatile in the past. Recent silver prices have traded in the $17 19/ozrange, well below their long term highs of $50/oz in 1980. From the onset of the financial crisis, priceshave been supported by safe haven demand from investors (mainly through ETFs) though industrialdemand has been soft. Historically silver’s volatility has been due to its dual correlation with gold (as astore of value) and base metals (for its industrial use). Though we are bullish about silver price in thelong run, we do note that if silver prices soften over a prolonged time frame, it will dampen SAC’soutlook.

Our sensitivity analysis shows that with a $1 decline in silver price from our base case of $15 per oz,SAC’s NPV would decline by 9% to C$3.60 per share. However, it is still well above the current price.

Sensitivity of NPV to Silver Prices

Silver Price NPV per share % decline

$15 per ounce C$3.95

$14 per ounce C$3.60 9%

$13 per ounce C$3.25 18%

$12 per ounce C$2.90 27%

Source: Redchip estimates

Foreign Currency risk

Majority of SAC’s working capital is held in US dollars, with only modest exposure to the Boliviancurrency and Canadian Dollar. Once production commences, fluctuations in the exchange rate betweenthe US Dollar and Bolivian Boliviano could have a more material effect on SAC’s results of operations,though the Company will hedge its currency risks in all likelihood.

Financial Snapshot

Company financials FY08 actual FY09 actual FY10 Company FY10 RedChip



Foreign Currency risk. A majority of SAC’s working capital is held in US dollars, with only modest exposure to the Bolivian currency and Canadian Dollar. Once production commences, fluctuations in the exchange rate between the US Dollar and Bolivian Boliviano could have a more material effect on SAC’s results of operations, though the Company will in all likelihood hedge its currency risks.

FINANCIAL SNAPSHOT

• The initial capital cost of $124.2 million will be incurred over a period of six years starting from 2011 to 2016.

• The initial spending will be financed by approximately 80% bank funding and the balance from fresh equity and the existing cash balance.

• SAC intends to buy the net smelter royalty (NSR) for $500,000 just prior to production.

VALuATION ASSuMPTIONS

Discount Rate. At 15%, our discount rate is higher than the 7% rate we normally use for comparable companies with assets in North America. The higher discount rate is primarily to account for Bolivia’s high geopolitical risk profile.

Capital expenditure and other outflows in the coming years. Under our base case of 35,000 tons per day heap leach operation, the initial capital cost of $124.2 million will be incurred over a period of six years starting at construction. The initial capital cost under our base case is higher than the $103.4 million estimated in the 2009 Preliminary Economic Assessment dut to an estimated higher throughput (35,000 vs. 20,000). Additionally the Company expects to incur $5-15 million annually over the next couple of years for drilling, and another $15-20 million to complete the feasibility study. Silver Price. We have used a long-term average silver price of $15 per oz in our base case scenario. Though the price assumption is lower compared to the 2010 YTD average silver of approx $17 per oz and current price of approx $18 per oz, we note that average price has ranged between $7 per oz and $15 per oz in the last five years. This is due to our relatively bullish stance on silver, which is a result of the macroeconomic imbalances and increased industrial use of the metal as discussed in the ‘Silver Market Overview’ section.

5

long run, we do note that if silver prices soften over a prolonged time frame, it will dampen SAC’soutlook.

Our sensitivity analysis shows that with a $1 decline in silver price from our base case of $15 per oz,SAC’s NPV would decline by 10% to C$3.7 per share. However, it is still well above the current price.

Sensitivity of NPV to Silver Prices

Silver Price NPV per share % decline

$15 per ounce C$2.59

$14 per ounce C$2.32 10%

$13 per ounce C$2.06 11%

$12 per ounce C$1.79 13%


Foreign Currency risk

Majority of SAC’s working capital is held in US dollars, with only modest exposure to the Boliviancurrency and Canadian Dollar. Once production commences, fluctuations in the exchange rate betweenthe US Dollar and Bolivian Boliviano could have a more material effect on SAC’s results of operations,though the Company will in all likelihood hedge its currency risks.

Financial Snapshot

Company financials FY08 actual FY09 actual FY10 CompanyGuidance*

FY10 RedChipEstimate*

Revenue ($ million) N.A. N.A. N.A. N.A.

Operating Income ($million)

(3.1) (1.9) N.A. N.A.

Operating Profitmargin

N.A. N.A. N.A. N.A.

Net Profit ($ million) (3.1) (1.8) N.A. N.A.

Net margin N.A. N.A. N.A. N.A.

*SAC is expected to start production in 2012 2014.

The initial capital cost of $103.37 million will be incurred over a period of six years starting from2011 to 2016.

After the completion of feasibility, the capital spending will be in the range of $100 200 million.The initial spending will be financed by approximately 80% bank funding and the balance fromfresh equity and the existing cash balance.

SAC intends to buy the net smelter royalty (NSR) for $500,000 just prior to production.



Capacity utilization. Our NPV calculation is based on the process capacity of 35,000 tpd. In order to optimize the value of the project, SAC will most likely increase the throughput to close to 50,000tpd during the pre-feasibility/feasibility stage. This can potentially increase average annual silver production to 12.5 - 13 million oz from the current estimate of 9.5 million oz. Our sensitivity analysis below assesses the impact on NPV at varying levels of mining throughput, however in our base case we have used 179.7 million oz as the silver mined over a period of 20 years.

SENSITIVIT Y ANALY SIS - IMPAC T OF SILVER PRICES/dISCOuNT R ATE ON FAIR VALuE

7

NPV and price estimate

Tax rate 30.0%

Discount rate 15.0%

After-tax Cash Flows

NPV as on 1 Jan 2011 ($ ‘000) 317,861

NPV – current ($ ‘000) 296,407

Net debt as on 31st March 2010 ($ ‘000)* (7,014)

Expected cash proceeds from warrants/options* 8,945

Equity value 312,366

Diluted SAC shares (in 000)* 81,923

NPV per share in $ 3.81

Exchange rate as on 23 June 2010 1.04

NPV per share in C$ 3.95

P/NPV 0.8x

Price 3.20

CMP (C$) as on 23 June 2010 0.62

Upside / (Downside) 416.0% Source: Redchip estimates.*Proforma for the recently announced $4 million equity financing.

Silver Price: We have used a long term average silver price of $15 per oz in our base case scenario.Though the price assumption is lower compared to the 2010 YTD average silver of approx $17 per oz andcurrent price of approx $18 per oz, we note that average price has ranged between $7 per oz and $15per oz in the last five years. This is due to our relatively bullish stance on silver, which is a result of themacroeconomic imbalances and increased industrial use of the metal as discussed in the ‘Silver MarketOverview’ section.

Capacity utilization: Our NPV calculation is based on the process capacity of 35,000 tpd. In order tooptimize the value of the project, SAC will likely increase the throughput to close to 50,000tpd duringthe pre feasibility/feasibility stage, with a life span of around 20 years. This can potentially increaseaverage annual silver production to 12.5 – 13 million oz from the current estimate of 9.5 million oz. Wehave run sensitivity analysis to assess the impact on NPV at varying levels of mining throughput. In ourbase case, however, we have used 179.7 million oz as the silver mined over a period of 20 years.

Scenarios Production t/d NPV (C$ per share)

MOz silver produced

Additional Capex*

Base Case 35,000

3.95 179.7

25%-

Best Case 50,000

6.08 201.2

30%

Worst Case 25,000

2.75 241.4

10%

Source: Redchip estimates.*From initial PEA estimates,

7

Silver Price: We have used a long term average silver price of $15 per oz in our base case scenario.Though the price assumption is lower compared to the 2010 YTD average silver of approx $17 per oz andcurrent price of approx $18 per oz, we note that average price has ranged between $7 per oz and $15per oz in the last five years. This is due to our relatively bullish stance on silver, which is a result of themacroeconomic imbalances and increased industrial use of the metal as discussed in the ‘Silver MarketOverview’ section.

Capacity utilization: Our NPV calculation is based on the process capacity of 20,000 tpd used in the PEA.In order to optimize the value of the project, SAC will most likely consider increasing the throughputduring the pre feasibility/feasibility stage. This can potentially double average annual silver productionfrom the current estimate of 6.4 million oz and shorten the life span to around 20 years. As such, capitalspending at the time of construction may be in the range of $100 200 million. We have run sensitivityanalysis to assess the impact on NPV, in case the Company is able to operate at higher capacity levels(factoring in the requirements of higher capital expenditure). In our base case, however, we have used160.9 million oz as the silver mined over a period of 36 years.

Scenarios Production tpd NPV

(C$ per share)

M oz silver produced

Additional Capex*

Base Case 35,000 3.95 179.7 25% -

Best Case 50,000 6.08 201.2 30%

Worst Case 25,000 2.75 241.4 10%Source: RedChip estimates*From initial PEA estimates

Sensitivity Analysis

Impact of silver prices/Discount rate on fair value (NPV per share)

8



3.9 12.00 12.50 13.00 13.50 14.00 14.50 15.00 15.50 16.00 16.50 17.00 17.50 18.00 9.0% 5.08 5.38 5.67 5.96 6.25 6.55 6.84 7.13 7.42 7.72 8.01 8.30 8.59 9.5% 4.84 5.12 5.40 5.68 5.96 6.24 6.51 6.79 7.07 7.35 7.63 7.91 8.19

10.0% 4.61 4.88 5.14 5.41 5.68 5.94 6.21 6.48 6.74 7.01 7.28 7.54 7.81 10.5% 4.39 4.65 4.90 5.16 5.41 5.67 5.92 6.18 6.43 6.69 6.94 7.20 7.45 11.0% 4.18 4.43 4.67 4.92 5.16 5.41 5.65 5.90 6.14 6.38 6.63 6.87 7.12 11.5% 3.99 4.22 4.46 4.69 4.93 5.16 5.39 5.63 5.86 6.10 6.33 6.56 6.80 12.0% 3.81 4.03 4.26 4.48 4.70 4.93 5.15 5.38 5.60 5.82 6.05 6.27 6.50 12.5% 3.63 3.85 4.06 4.28 4.49 4.71 4.92 5.14 5.35 5.57 5.78 6.00 6.21 13.0% 3.47 3.68 3.88 4.09 4.29 4.50 4.71 4.91 5.12 5.33 5.53 5.74 5.94 13.5% 3.31 3.51 3.71 3.91 4.11 4.30 4.50 4.70 4.90 5.10 5.29 5.49 5.69 14.0% 3.17 3.36 3.55 3.74 3.93 4.12 4.31 4.50 4.69 4.88 5.07 5.26 5.45 14.5% 3.03 3.21 3.39 3.58 3.76 3.94 4.12 4.31 4.49 4.67 4.85 5.04 5.22 15.0% 2.90 3.07 3.25 3.42 3.60 3.77 3.95 4.12 4.30 4.48 4.65 4.83 5.00 15.5% 2.77 2.94 3.11 3.28 3.45 3.62 3.78 3.95 4.12 4.29 4.46 4.63 4.80 16.0% 2.65 2.82 2.98 3.14 3.30 3.47 3.63 3.79 3.95 4.11 4.28 4.44 4.60 16.5% 2.54 2.70 2.85 3.01 3.17 3.32 3.48 3.63 3.79 3.95 4.10 4.26 4.42 17.0% 2.43 2.58 2.74 2.89 3.04 3.19 3.34 3.49 3.64 3.79 3.94 4.09 4.24 17.5% 2.33 2.48 2.62 2.77 2.91 3.06 3.20 3.35 3.49 3.64 3.78 3.93 4.07 18.0% 2.24 2.38 2.52 2.66 2.80 2.94 3.07 3.21 3.35 3.49 3.63 3.77 3.91 18.5% 2.15 2.28 2.41 2.55 2.68 2.82 2.95 3.09 3.22 3.36 3.49 3.63 3.76 19.0% 2.06 2.19 2.32 2.45 2.58 2.71 2.84 2.97 3.10 3.23 3.36 3.49 3.62 19.5% 1.98 2.10 2.23 2.35 2.48 2.60 2.73 2.85 2.98 3.10 3.23 3.35 3.48 20.0% 1.90 2.02 2.14 2.26 2.38 2.50 2.62 2.74 2.86 2.99 3.11 3.23 3.35 20.5% 1.82 1.94 2.06 2.17 2.29 2.41 2.52 2.64 2.76 2.87 2.99 3.11 3.22 21.0% 1.75 1.86 1.98 2.09 2.20 2.31 2.43 2.54 2.65 2.77 2.88 2.99 3.10


SAC’s fair value (NAV per share) is sensitive to silver price per oz and the discount rate assigned to thefuture cash flows from the project. A $1 increase or decrease in silver price estimate keeping thediscount rate constant at 15% increases or decreases the NPV per share by 8.8%.

Relative Valuations

Company Name EV C$ (million) Market Cap C$ (million) P/B Silver M Oz* EV/OzMinco Silver Corp 122.76 129.17 4.7x 156.79 0.78Silvercrest Mines Inc 61.13 63.38 7.8x 62.45 0.98Orko Silver Corp 169.99 171.79 31.0x 140.70 1.21Alexco Resource Corp 145.31 175.52 2.0x 217.10 0.67ECU SilverMining Inc 211.20 193.59 3.1x 431.20 0.49Bear CreekMining Corp 267.06 321.48 4.1x 365.40 0.73Tahoe Resources Inc. 409.77 729.87 NA 334.45 1.23MAGSilver Corp 348.71 372.97 4.2x 240.04 1.45Median 4.2x 0.88

South American Silver 28.02 37.83 2.71 322.38 0.09Source: Bloomberg and respective company filings, press releases.Note: Values as on 23rdh June 2010.*Reported silver resources.

The list of peers comprises companies with early stage silver assets in Central and South Americannations. The resource profile and geopolitical risk profile are similar to that of SAC. Similar to SAC, thepeers all have debt free balance sheets.

DiscountRate

%

Silver Price $/oz



SAC’s fair value (NAV per share) is sensitive to silver price per oz and the discount rate assigned to the future cash flows from the project. A $1 increase or decrease in silver price estimate keeping the discount rate constant at 15% increases or decreases the NPV per share by about 9%.

REL ATIVE VALuATIONS

The list of peers comprises companies with early stage silver assets in Central and South American nations. The resource profile and geopolitical risk profile are similar to that of SAC. Similar to SAC, the peers all have debt-free balance sheets.

• SAC enterprise value per ounce of silver is less than a fourth of the cheapest comparable in the list, ECU Silver Mining. SAC has a large resource base which is large enough to support a higher market valuation similar to other peers like Minco Silver Corp, MAG Silver Corp, Bear Creek and Tahoe.

• The peers are in different stages of exploration. However, due to the leachable resource base of SAC, it enjoys low initial capital and operating costs. We therefore believe the market is ascribing a value to SAC’s resource that is nowhere near what can be justified as a fair value based on the ratio of operating costs to the value of metal underground.

• The recent transaction between Tahoe Resources and Goldcorp underscores SAC’s undervaluation. Tahoe recently raised C$348 million in an IPO (the second largest IPO in Canada this year) to buy a Guatemalan silver deposit from Goldcorp, valuing the property at an EV/oz of C$1.51. The property is similar to SAC’s Malku Khota in terms of geological profile, but is in an earlier stage of development, and is located in a similar jurisdiction compared to Bolivia.

• Another good comparable is Bear Creek with 365 million ounces of silver in Peru at a similar stage of advancement and a similar geopolitical risk profile. Bear Creek is trading at an EV/oz of C$0.73. Though Bear Creek has comparatively better leverage to costs as lead and zinc credits will likely result in negative cash costs per ounce on a byproduct basis, we see no reason why SAC should not trade within 25% of that valuation.

8



3.9 12.00 12.50 13.00 13.50 14.00 14.50 15.00 15.50 16.00 16.50 17.00 17.50 18.00 9.0% 5.08 5.38 5.67 5.96 6.25 6.55 6.84 7.13 7.42 7.72 8.01 8.30 8.59 9.5% 4.84 5.12 5.40 5.68 5.96 6.24 6.51 6.79 7.07 7.35 7.63 7.91 8.19

10.0% 4.61 4.88 5.14 5.41 5.68 5.94 6.21 6.48 6.74 7.01 7.28 7.54 7.81 10.5% 4.39 4.65 4.90 5.16 5.41 5.67 5.92 6.18 6.43 6.69 6.94 7.20 7.45 11.0% 4.18 4.43 4.67 4.92 5.16 5.41 5.65 5.90 6.14 6.38 6.63 6.87 7.12 11.5% 3.99 4.22 4.46 4.69 4.93 5.16 5.39 5.63 5.86 6.10 6.33 6.56 6.80 12.0% 3.81 4.03 4.26 4.48 4.70 4.93 5.15 5.38 5.60 5.82 6.05 6.27 6.50 12.5% 3.63 3.85 4.06 4.28 4.49 4.71 4.92 5.14 5.35 5.57 5.78 6.00 6.21 13.0% 3.47 3.68 3.88 4.09 4.29 4.50 4.71 4.91 5.12 5.33 5.53 5.74 5.94 13.5% 3.31 3.51 3.71 3.91 4.11 4.30 4.50 4.70 4.90 5.10 5.29 5.49 5.69 14.0% 3.17 3.36 3.55 3.74 3.93 4.12 4.31 4.50 4.69 4.88 5.07 5.26 5.45 14.5% 3.03 3.21 3.39 3.58 3.76 3.94 4.12 4.31 4.49 4.67 4.85 5.04 5.22 15.0% 2.90 3.07 3.25 3.42 3.60 3.77 3.95 4.12 4.30 4.48 4.65 4.83 5.00 15.5% 2.77 2.94 3.11 3.28 3.45 3.62 3.78 3.95 4.12 4.29 4.46 4.63 4.80 16.0% 2.65 2.82 2.98 3.14 3.30 3.47 3.63 3.79 3.95 4.11 4.28 4.44 4.60 16.5% 2.54 2.70 2.85 3.01 3.17 3.32 3.48 3.63 3.79 3.95 4.10 4.26 4.42 17.0% 2.43 2.58 2.74 2.89 3.04 3.19 3.34 3.49 3.64 3.79 3.94 4.09 4.24 17.5% 2.33 2.48 2.62 2.77 2.91 3.06 3.20 3.35 3.49 3.64 3.78 3.93 4.07 18.0% 2.24 2.38 2.52 2.66 2.80 2.94 3.07 3.21 3.35 3.49 3.63 3.77 3.91 18.5% 2.15 2.28 2.41 2.55 2.68 2.82 2.95 3.09 3.22 3.36 3.49 3.63 3.76 19.0% 2.06 2.19 2.32 2.45 2.58 2.71 2.84 2.97 3.10 3.23 3.36 3.49 3.62 19.5% 1.98 2.10 2.23 2.35 2.48 2.60 2.73 2.85 2.98 3.10 3.23 3.35 3.48 20.0% 1.90 2.02 2.14 2.26 2.38 2.50 2.62 2.74 2.86 2.99 3.11 3.23 3.35 20.5% 1.82 1.94 2.06 2.17 2.29 2.41 2.52 2.64 2.76 2.87 2.99 3.11 3.22 21.0% 1.75 1.86 1.98 2.09 2.20 2.31 2.43 2.54 2.65 2.77 2.88 2.99 3.10


SAC’s fair value (NAV per share) is sensitive to silver price per oz and the discount rate assigned to thefuture cash flows from the project. A $1 increase or decrease in silver price estimate keeping thediscount rate constant at 15% increases or decreases the NPV per share by 8.8%.

Relative Valuations

Company Name EV C$ (million) Market Cap C$ (million) P/B Silver M Oz* EV/OzMinco Silver Corp 122.76 129.17 4.7x 156.79 0.78Silvercrest Mines Inc 61.13 63.38 7.8x 62.45 0.98Orko Silver Corp 169.99 171.79 31.0x 140.70 1.21Alexco Resource Corp 145.31 175.52 2.0x 217.10 0.67ECU SilverMining Inc 211.20 193.59 3.1x 431.20 0.49Bear CreekMining Corp 267.06 321.48 4.1x 365.40 0.73Tahoe Resources Inc. 409.77 729.87 NA 334.45 1.23MAGSilver Corp 348.71 372.97 4.2x 240.04 1.45Median 4.2x 0.88

South American Silver 28.02 37.83 2.71 322.38 0.09Source: Bloomberg and respective company filings, press releases.Note: Values as on 23rdh June 2010.*Reported silver resources.

The list of peers comprises companies with early stage silver assets in Central and South Americannations. The resource profile and geopolitical risk profile are similar to that of SAC. Similar to SAC, thepeers all have debt free balance sheets.

DiscountRate

%

Silver Price $/oz



• As mentioned earlier, limited market visibility and a high risk premium to its relatively new resource base (released in the turbulent 2008 market) in Bolivia has kept valuations depressed. We expect the stock to trade near its peer group median in the near future once SAC successfully expands its resource base and moves closer to the pre-feasibility stage.

TAkEOVER ANALY SIS

Basis of Valuation. Given its attractive resource base and potential for significant resource expansion, we view SAC as a likely takeover candidate in the next cycle of consolidation in the industry once the financing environment improves. Tahoe’s acquisition of Goldcorp’s Guatemalan silver deposit through an IPO in May 2010, and Fresnillo’s unsuccessful hostile bid for MAG Silver in late 2008 and early 2009 gives us a sense of the latent appetite for development-stage silver assets in risky jurisdictions.

The most recent transaction and a good comparable for estimating a takeover price for SAC is Tahoe Resources Inc. due to the similarity in geological profile and resource size. Tahoe paid an all-in acquisition price of $505 million, or $1.51 per oz of silver resource. We use a higher value of $2.25 per oz to estimate SAC’s takeover price since its resource is at a more advanced stage compared to Tahoe with a PEA already done and pre-feasibility expected in 2011.

The all-in acquisition price, however, does not reflect the operating and capital cost structure of a mineable deposit. Since the cost structure plays a key role for valuation of such assets, we take our analysis one step further, and deduct the present value of operating and capital costs from the all-in acquisition price, as well as the net debt.

9

SAC enterprise value per ounce of silver is less than a fourth of the cheapest comparable in thelist, ECU Silver Mining. SAC has a resource base large enough to support a higher marketvaluation similar to other peers like Minco Silver Corp, MAG Silver Corp, Bear Creek and Tahoe.

The peers are in the different stages of exploration. However, due to leachable resource base ofSAC, it enjoys low initial capital and operating costs. We therefore believe the market isascribing a value to SAC’s resource that is nowhere near to what can be justified as a fair valuebased on the ratio of operating costs to value of metal underground.

The recent transaction between Tahoe Resources and Goldcorp underscores SAC’sundervaluation. Tahoe recently raised a C$348 million in an IPO (the second largest IPO inCanada this year) to buy a Guatemalan silver deposit from Goldcorp, valuing the property at anEV/oz of C$1.51. The property is similar to SAC’s Malku Khota in terms of geological profile, butis in an earlier stage of development, and is located in a similar jurisdiction compared to Bolivia.

Another good comparable is Bear Creek with 365 million ounces of silver in Peru at a similarstage of advancement and a similar geopolitical risk profile. Bear Creek is trading at an EV/oz ofC$0.73. Though Bear Creek has comparatively better leverage to costs as lead and zinc creditswill likely result in negative cash costs per ounce on a by product basis, we see no reason whySAC should not trade within 25% of that valuation.

As mentioned earlier, limited market visibility and a high risk premium to its relatively newresource base (released in the turbulent 2008 market) in Bolivia has kept valuations depressed.We expect the stock to trade near its peer group median in the near future once SACsuccessfully expands its resource base and moves closer to the pre feasibility stage.

Relative Valuation Bubble Chart

0.0

0.5

1.0

1.5

2.0

2.5

0 50 100 150 200 250 300 350 400 450 500

EV/oz

Silver M oz

MAGSilver

Tahoe Resources

BearCreek

ECU SilverSAC

OrkoSilver

AlexcoMincoSilver

Silvercrest

SAC is undervalued as compared to itspeers despite having a comparativelylarge resource base.



The resulting estimated takeover price of C$3.20 per share equal to our discounted cash flow valuation of $3.20 per share. Enterprise value of C$0.78 per ounce using this takeover price estimate is also within the range of its peer group. The takeover valuation, therefore, is another way of justifying SAC’s deeply discounted valuation. With resource expansion and advancements through the development curve, we expect the Company to command a premium over our takeover price estimate.

COMPANY PROFILE

SAC is a mineral exploration Company that acquires, explores and develops mineral properties. The Company holds interests in two material properties: the Malku Khota silver-indium-gold property in Bolivia and the Escalones copper-gold-molybdenum property in Chile. The Malku Khota silver-indium deposit has indicated resources of 144.6 million oz of silver and 845 tonnes of indium and inferred resources of 177.8 million oz of silver and 968 tonnes of indium. SAC is approximately 3-4 years away from actual metals production at Malku Khota, but the deposit has good exploration upside, as the resource covers only 3.5 km of the project’s 15 km strike length.

SAC has guided that it plans to explore the Chile-located Escalones property further in the future, but the estimates of the resources are not yet available. Also, the property is accessible by road resulting in easy access, and its location in the district of El Teniente (which houses the world’s largest open pit copper mine) favors mining activity.

Malku Khota Silver-Indium Project

The Malku Khota project is located in the Cordilera Oriental, about 98 km east-southeast of Oruro in central Bolivia, and 260 km southeast of La Paz, the capital of Bolivia. The project in Malku Khota had silver mineralization within a surface area of 448,000 square meters and to a drilled depth of up to 400 meters below the surface. The stages of the progress of the project are as depicted below:

Significant control. SAC controls a significant block of land in the area around the Malku Khota Project with 100% interest in the property. The total surface covered by the Malku Khota group of properties is 5,475 hectares. It is currently in the exploration phase and requirements for the surface rights for mining operations are yet to be determined.

10

Source: Company websites and Bloomberg

Takeover Analysis

Basis of Valuation: Given its attractive resource base and potential for significant resource expansion,we view SAC is a likely takeover candidate in the next cycle of consolidation in the industry oncefinancing environment improves. Tahoe’s acquisition of Goldcorp’s Guatemalan silver deposit throughan IPO in May 2010, and Fresnillo’s unsuccessful hostile bid for MAG Silver in late 2008 and early 2009gives us a sense of the latent appetite for development stage silver assets in risky jurisdictions.

The most recent transaction and a good comparable for estimating a takeover price for SAC is TahoeResources Inc. due to the similarity in geological profile and resource size. Tahoe paid an all inacquisition price of $505 million, or $1.51 per oz of silver resource. We use a higher value of $2.25 peroz to estimate SAC’s takeover price since its resource is at a more advanced stage compared to Tahoewith a PEA already done and pre feasibility expected in 2011.

The all in acquisition price, however, does not reflect the operating and capital cost structure of amineable deposit. Since the cost structure plays a key role for valuation of such assets, we take ouranalysis one step further, and deduct the present value of operating and capital costs from the all inacquisition price, as well as the net debt.

Takeover Valuation Unit Amount

All-in Acquisition Price $/oz 2.25

Less: Forecasted Operating Costs $/oz 0.8

1.5

Less: Forecasted Capital Costs $/oz 0.3

Forecasted Taxes 0.5

Less: Net Debt (Net Cash) $/oz (0.05)

Net Purchase Price $/oz 0.8

Recoverable Resources M oz 322.4

Potential Acquisition Value $ million 251.1

Fully Diluted Shares* million 81.9

Potential Takeover Price Per Share C$ 3.20

Current $-C$ Exchange Rate 1.04Source: RedChip Estimates.*Proforma for the recently announced $4mn equity raise.

The resulting estimated takeover price of C$3.20 per share equal to our discounted cash flow valuationof $3.20 per share. Enterprise value of C$0.78 per ounce using this takeover price estimate is also within

RedChip Visibility | 10 | South American Silver Corp.


Rapid Payback. Due to its low initial capital costs and low operating costs, the payback period is estimated to be 1.4 years (from start of production). IRR for the project based on post tax cash flows is 46.1%. On the contrary, the payback period for Bear Creek Mining Corp.’s Corani project (27-year mine life) is estimated at 3 years. In addition, the tax benefit carried forward from past year’s losses provides an additional upside to SAC’s cash flows.

Low cash costs. Due to the leachable silver-indium resource at Malku Khota, operating cash costs of $3.75 per oz (net of credits) and initial capital costs of $103.37 million are lower as compared to its peers. Sabina Gold & Silver Corp. comes closest to SAC in terms of cash costs ($4.4/oz). The Company has the lowest cash costs as shown in the chart below. Although initial capital costs to prepare the mine for production are the lowest for Bear Creek ($51 million), it involves high operating cash costs ($7.47/oz) at the time of actual production.

13

Source: Company websites

Low levels of waste: Significant portions of the resource are in the exposed ridgeline, which shouldallow for an exceptionally low waste to ore (“strip”) ratio in the early years of mining. The metalrecoveries in the PEA, 80% silver and 70% indium are considered good. Also, the Company estimatesthat heap leaching recoveries may be lower depending on size of rock material and mill recoveries maybe higher.

By product revenue adds to cash flows: A portion of the resources include higher grades that include anindium component which is expected to contribute to higher cash flow in the early years of production.

Support from community and government: The Malku Khota Project is of economic importance to theregion, and with the potentially long mine life, the project has received encouragement from thegovernment to accelerate its development. Moreover, the BSR Group (Business for Social Responsibility)has been entrusted to develop a pro active community relations program that represents all stakeholders facilitate a smooth transition from exploration to production.

SWOT Analysis

Strengths Weaknesses

Malku Khota is one of the largest silver depositmines in Bolivia with combined indicated andinferred resources of approx 323 million oz.

Low operating cost per oz of $3.75 (net ofcredits) and low initial capital cost of $103.37million

Low payback period of 1.4 years (since the startof production).

Long lead time to production (expected start ofproduction would be in 2013).

SAC has no Proven and Probable (P&P)reserves. Resources estimates are only atindicated and inferred level.

Opportunities Threats

Upside from further exploration of Malku Khotamine area as the on going exploration covers

Environmental regulations and terrain risk.

Downside risk to silver prices.

12

square meters and to a drilled depth of up to 400 meters below the surface. The stages of the progressof the project are as depicted below:

DISCOVERYRESOURCEDEFINITION

PEA

PREFEASIBILITY

PERMIT&CONSTRUCTFEASIBILITY PRODUCTION

INCREASINGRESOURCE INCREASING CERTAINTY

EXPLORATIONVALUATION

RESOURCE DEFINITIONPRELIMINARY ECONOMIC

ASSESSMENT (PEA)

PREFEASIBILITY /FEASIBILITY

PRODUCERSJUNIOR & MID TIER

DECREASING TECHNICAL RISK / INCREASING MARKET VALUATION

Source: Company filings

Project: Malku Khota: Key Highlights

Significant control: SAC controls a significant block of land in the area around the Malku Khota Projectwith 100% interest in the property. The total surface covered by the Malku Khota group of properties is5,475 hectares. It is currently in the exploration phase and requirements for the surface rights for miningoperations are yet to be determined.

Rapid Payback: Due to its low initial capital costs and low operating costs, the payback period isestimated to be 1.4 years (from start of production). IRR for the project based on post tax cash flows is46.1%. On the contrary, the payback period for Bear Creek Mining Corp.’s Corani project (27 year minelife) is estimated at 3 years. In addition, the tax benefit from carried forward past year’s losses providesan additional upside to the SAC’s cash flows.

Low cash costs. Due to the leachable silver indium resource at Malku Khota, operating cash costs of$3.75 per oz (net of credits) and initial capital costs of $103.37 million are lower as compared to itspeers. Sabina Gold & Silver Corp. comes closest to SAC in terms of cash costs ($4.4/oz). The Companyhas lowest cash costs as shown in the chart below. Although, initial capital costs to prepare the mine forproduction are the lowest for Bear Creek ($51 million) but it involves high operating cash costs($7.47/oz) at the time of actual production.

2009 2010 2011 2012-2014

RedChip Visibility | 11 | South American Silver Corp.


Low levels of waste. Significant portions of the resource are in the exposed ridgeline, which should allow for an exceptionally low waste-to-ore (“strip”) ratio in the early years of mining. The metal recoveries in the PEA, 80% silver and 70% indium are considered good. Also, the Company estimates that heap leaching recoveries may be lower depending on the size of rock material and mill recoveries may be higher.

By-product revenue adds to cash flows. A portion of the resources include higher grades that include an indium component which is expected to contribute to higher cash flow in the early years of production.

Support from community and government. The Malku Khota Project is of economic importance to the region, and with the potentially long mine life, the project has received encouragement from the government to accelerate its development. Moreover, the BSR Group (Business for Social Responsibility) has been entrusted to develop a pro-active community relations program that represents all stake-holders to facilitate a smooth transition from exploration to production.

SWOT ANALY SIS

LIquIdIT Y ANd C APITAL RESOuRCES

12

has been entrusted to develop a pro active community relations program that represents all stakeholders facilitate a smooth transition from exploration to production.

SWOT Analysis

Strengths Weaknesses

Malku Khota is one of the largest silver depositmines in Bolivia with combined indicated andinferred resources of approx 323 million oz.

Low operating cost per oz of $3.75 (net ofcredits) and low initial capital cost of $103.37million

Low payback period of 1.4 years (since the startof production).

Long lead time to production (expected start ofproduction would be in 2013).

SAC has no Proven and Probable (P&P)reserves. Resources estimates are only atindicated and inferred level.

Opportunities Threats

Upside from further exploration of Malku Khotamine area as the on going exploration coversonly 25% of the project’s 15 km strike length.

Environmental regulations and terrain risk.

Downside risk to silver prices.

Geo political risk associated with Bolivia.

Summary financials

SAC had cash and cash equivalents of US$7 million as of the end of 2009. As per the company, the bulkof the initial capex of $103.4 million will be incurred in 2011 and 2012.

In USD ‘000 (as of December) 2007 2008 2009

Cash and Cash Equivalents 12,870.40 7,422.87 7,013.97

Shareholder’s Equity 15,767.92 13,710.12 15,396.45

Mining claims and deferred explorationcosts

3,180.50 6,454.79 8,675.05


14

only 25% of the project’s 15 km strike length. Geo political risks associated with Bolivia.

Liquidity And Capital Resources

SAC had cash and cash equivalents of US$5.8 million as of the March 2010. Starting the year with a cashbalance of $7 million, SAC spent approx $1.2 million in the first quarter. Management estimatesspending requirements for the rest of 2010 at $4million, primarily for drilling activities, which keeps SACin a comfortable liquidity position. Management expects 2011 spending requirements at the same levelas 2010, and is looking to raise additional equity at reasonable costs.

In USD ‘000 (as of December) 2007 2008 2009 1Q2010

Cash and Cash Equivalents 12,870.40 7,422.87 7,013.97 5,814.50

Shareholder’s Equity 15,767.92 13,710.12 15,396.45 14,961.08

Mining claims and deferredexploration costs

3,180.50 6,454.79 8,675.05 9,425.72


Revenue distribution estimate: Based on the preliminary economic estimation, SAC is expecting a largepart of its revenue from Silver, Indium and Gold. Copper and Lead will be derived as by products addingto the overall cash inflows.


Revenue Model of Malku Khota Project for period 2014E 2018E

Malku Khota project is expected to commence production in 2013 and we estimate the total revenuesof $102.38mn in FY2013, of which 87.6% would be contributed by silver.

RedChip Visibility | 1� | South American Silver Corp.


SAC had cash and cash equivalents of US$5.8 million as of March 31, 2010. Starting the year with a cash balance of $7 million, SAC spent approximately $1.2 million in the first quarter. Management estimates spending requirements for the rest of 2010 at $4 million, primarily for drilling activities, which keeps SAC in a comfortable liquidity position. Management expects 2011 spending requirements at the same level as 2010, and is looking to raise additional equity at reasonable costs.

Revenue distribution estimate. Based on the preliminary economic estimation, SAC is expecting a large part of its revenue from Silver, Indium and Gold. Copper and Lead will be derived as by-products adding to the overall cash inflows.

Revenue Model of Malku Khota Project for period 2014E-2018E. Malku Khota project is expected to commence production in 2014 and we estimate total revenues to be $102.38mn in FY2013, of which 87.6% would be contributed by silver.

OWNERSHIP


Revenue distribution estimate (March 2009)

Silver70%

Indium18%

Gold, Copper,Lead12%


14

All figures in $’000 2014E 2015E 2016E 2017E 2018E

Silver revenue 156,922 195,669 157,954 149,962 170,167

Indium revenue 15,955 23,901 30,206 36,120 35,876

By product credit 12,950 18,130 18,130 18,130 18,130

Total revenues 185,827 237,700 206,291 204,213 224,173

Total cash operating costs 47,310 67,074 73,674 76,531 72,151

Depreciation 5,192 6,241 6,241 6,241 6,241

EBIT 133,325 164,385 126,376 121,440 145,781

EBIT (%) 71.75% 69.16% 61.26% 59.47% 65.03%Source: Redchip estimates

Ownership

Shareholding Pattern Stake

Ralph Fitch 4.7%Gregory Johnson 2.5%

Felipe Malbren 2.2%

Richard Doran 1.3%

Public and others 89.3%

Total 100.0%Source: Company.

Technical Report: Key Highlights

Favorable economic assessment: SAC completed a preliminary economic assessment on its MalkuKhota project in Bolivia. The study estimated a base case, pre tax net cash flow of $1,233 million (NPV of$326 million at a 10% discount rate) and an internal rate of return of 50.7%. The study suggested a20,000 tonnes per day acid heap leach operation with a mine life of 36 years.

Summary of Key Economic Indicators Details

Initial Capital Cost ($million) 103.37

Life of Mine 36 years

Net Cash Flow, pre tax ($million) 1,233.30

Internal Rate of Return (IRR) 50.7%

Payback period from start of production 1.4 yearsSource: Company filing

Environmental liability and permitting: SAC faces no environmental liabilities associated with theproject. As per the technical report, some alpine natural lakes near the site contains fish and may needadditional monitoring to ensure that exploration activities do not jeopardize the water quality in theselakes. The project has a current environmental permit for its continued exploration work. Surface rights

14


Silver revenue 156,922 195,669 157,954 149,962 170,167

Indium revenue 15,955 23,901 30,206 36,120 35,876


Total revenues 185,827 237,700 206,291 204,213 224,173


Depreciation 5,192 6,241 6,241 6,241 6,241

EBIT 133,325 164,385 126,376 121,440 145,781


Ownership



Felipe Malbren 2.2%

Richard Doran 1.3%














kE Y HIGHLIGHTS FROM TECHNIC AL REPORT

Favorable economic assessment. SAC completed a preliminary economic assessment on its Malku Khota project in Bolivia. The study estimated a base case, pre-tax net cash flow of $1,233 million (NPV of $325 million at a 10% discount rate) and an internal rate of return of 50.7%. The study suggested a 20,000 tonnes per day acid heap leach operation with a mine life of 36 years.

Environmental liability and permitting. SAC faces no environmental liabilities associated with the project. As per the technical report, some alpine natural lakes near the site contain fish and may need additional monitoring to ensure that exploration activities do not jeopardize the water quality in these lakes. The project has a current environmental permit for its continued exploration work. Surface rights are owned by local individuals. It is customary to make agreements with the local users of the land before proceeding with any construction work such as road building for drill site access.

Large resource base. All of the resources estimated are in the indicated and inferred category. It is based on 25% exploration of the total length of 15km.

15

Source: Company filing

Large resource base: All the resources estimated are in the indicated and inferred category. It is basedon 25% exploration of the total length of 15Km.

Pit 1 Pit 2 Pit 3 Pit 4 Pit 5 Pit 6 TOTALTOTALMATERIAL(Waste+ Indicated+Inferred) t 65,727,111 34,845,709 13,932,233 21,802,827 68,669,759 290,549,100 495,526,738Mineral Resources(indicated + Inferred) t 39,161,547 27,004,076 11,912,973 16,763,707 46,448,429 106,035,758 247,326,490Silver grade g/t 40.26 36.27 33.34 27.49 17.55 19.12 25.30Indium grade ppm 7.46 9.70 3.44 6.98 3.22 5.69 5.92

Mineral Resources t 37,683,346 21,757,221 11,602,157 11,401,720 21,378,156 41,867,712 145,690,313Silver grade g/t 40.96 35.35 33.65 30.03 18.89 17.49 28.70Indium grade ppm 7.37 9.49 3.46 7.43 2.77 5.38 6.13

Mineral Resources t 1,478,202 5,246,855 310,816 5,361,987 25,070,272 64,168,046 101,636,177Silver grade g/t 22.48 40.10 21.47 22.10 16.40 20.19 20.42Indium grade ppm 9.55 10.57 2.79 6.02 3.61 5.90 5.62

Indicated

Inferred

Source: Company data

Global Metals and Minerals market overviewThe value of global precious metals and minerals market shrank (year over year) by 1.5% in 2008 toreach $38.5 billion. The market is forecasted at $47.4 billion by 2013, growing at a 5 year CAGR of 4.2%.

14


Silver revenue 156,922 195,669 157,954 149,962 170,167

Indium revenue 15,955 23,901 30,206 36,120 35,876


Total revenues 185,827 237,700 206,291 204,213 224,173


Depreciation 5,192 6,241 6,241 6,241 6,241

EBIT 133,325 164,385 126,376 121,440 145,781


Ownership



Felipe Malbren 2.2%

Richard Doran 1.3%












16

are owned by local individuals. It is customary to make agreements with the local users of the landbefore proceeding with any construction work such as road building for drill site access.

Source: Company filing

Large resource base: All the resources estimated are in the indicated and inferred category. It is basedon 25% exploration of the total length of 15Km.

Pit 1 Pit 2 Pit 3 Pit 4 Pit 5 Pit 6 TOTALTOTALMATERIAL(Waste+ Indicated+Inferred) t 65,727,111 34,845,709 13,932,233 21,802,827 68,669,759 290,549,100 495,526,738Mineral Resources(indicated + Inferred) t 39,161,547 27,004,076 11,912,973 16,763,707 46,448,429 106,035,758 247,326,490Silver grade g/t 40.26 36.27 33.34 27.49 17.55 19.12 25.30Indium grade ppm 7.46 9.70 3.44 6.98 3.22 5.69 5.92

Mineral Resources t 37,683,346 21,757,221 11,602,157 11,401,720 21,378,156 41,867,712 145,690,313Silver grade g/t 40.96 35.35 33.65 30.03 18.89 17.49 28.70Indium grade ppm 7.37 9.49 3.46 7.43 2.77 5.38 6.13

Mineral Resources t 1,478,202 5,246,855 310,816 5,361,987 25,070,272 64,168,046 101,636,177Silver grade g/t 22.48 40.10 21.47 22.10 16.40 20.19 20.42Indium grade ppm 9.55 10.57 2.79 6.02 3.61 5.90 5.62

Indicated

Inferred

Source: Company data.

GLOBAL METALS AND MINERALS MARKET OVERVIEW

The value of global precious metals and minerals market shrank (year over year) by 1.5% in 2008 toreach $38.5 billion. The market is forecasted at $47.4 billion by 2013, growing at a 5 year CAGR of 4.2%.



GLObAL METALS ANd MINER ALS MARkET OVERVIE W

The value of global precious metals and minerals market shrank (year-over-year) by 1.5% in 2008 to reach $38.5 billion. The market is forecasted at $47.4 billion by 2013, growing at a 5-year CAGR of 4.2%.

Silver comprised 17% ($11.0 billion) of the total precious metals market in 2008. Precious metals in turn occupied 3.9% of the $1.7 trillion metals and minerals market globally.

Market Segmentation: Metals and Mining by Value (2008)

Source: Datamonitor, Oct. 2009

Precious Metals Market Size Excluding Gold ($ billion)

38.547.4

05101520253035404550

2008 2013E

$billion

4.2% 5yr CAGR

63.4%

18.4%

8.6%

5.6% 3.9%

Iron and Steel

Coal

Base Metals

Aluminium

Precious Metals andMinerals

Source: Datamonitor, October 2009

$1,661.4billion



Market Segmentation: Precious Metals by Value (2008)

SILVER MARkET OVERVIE W

Silver Supply. Despite continuing growth in mine production, the supply side for silver remains under pressure from falling scrap supply and net government sales. Mine production registered its seventh consecutive year of growth in 2009, rising by 4% year on year to 709.6 million ounces. Supply of scrap silver fell to a 13-year low with a 6% year on year decline while net government sales fell by over 50%.

World Silver Supply (million ounces)

• According to the Silver Institute’s World Silver Survey 2009, compiled by GFMS, silver mine production in 2009 rose by 4% or 25 million oz to a new high of 709.6 million oz. Unlike in 2008, last year’s growth was driven by increases in primary mine supply. Silver produced as a by-product of gold mining was once again strong, registering a growth of 21% year over year, although supply from base metal sources were minimal.

18


Silver Market Overview

Demand – Supply Fundamentals

Silver Supply

Despite continuing growth in mine production, the supply side for silver remains under pressure fromfalling scrap supply and net government sales. Mine production registered its seventh consecutive yearof growth in 2009 rising by 4% year on year to 709.6 million ounces. Supply of scrap silver fell to a 13year low with a 6% year on year decline while net government sales fell by over 50%.


2002 2003 2004 2005 2006 2007 2008 2009

Supply

Mine Production 593.9 596.6 613.0 636.8 640.9 664.4 684.7 709.6

Net Government sales 59.2 88.7 61.9 65.9 78.2 42.5 27.6 13.7

Old Silver Scrap 187.5 184.0 183.7 186 188 181.8 176 165.7

Producer Hedging 9.6 27.6

Implied Net Disinvestment 11.6

Total Supply 852.2 869.3 868.2 916.7 907.5 888.4 888.4 889.0Source: World Silver Survey 2009 compiled by GFMS Ltd.

According to the Silver Institute’s World Silver Survey 2009, compiled by GFMS, silver mineproduction in 2009 rose by 4% or 25 million oz to a new high of 709.6 million oz. Unlike in 2008,

18


Silver Market Overview

Demand – Supply Fundamentals

Silver Supply

Despite continuing growth in mine production, the supply side for silver remains under pressure fromfalling scrap supply and net government sales. Mine production registered its seventh consecutive yearof growth in 2009 rising by 4% year on year to 709.6 million ounces. Supply of scrap silver fell to a 13year low with a 6% year on year decline while net government sales fell by over 50%.


2002 2003 2004 2005 2006 2007 2008 2009

Supply

Mine Production 593.9 596.6 613.0 636.8 640.9 664.4 684.7 709.6

Net Government sales 59.2 88.7 61.9 65.9 78.2 42.5 27.6 13.7

Old Silver Scrap 187.5 184.0 183.7 186 188 181.8 176 165.7

Producer Hedging 9.6 27.6

Implied Net Disinvestment 11.6

Total Supply 852.2 869.3 868.2 916.7 907.5 888.4 888.4 889.0Source: World Silver Survey 2009 compiled by GFMS Ltd.

According to the Silver Institute’s World Silver Survey 2009, compiled by GFMS, silver mineproduction in 2009 rose by 4% or 25 million oz to a new high of 709.6 million oz. Unlike in 2008,



• At just 13.7 million oz, net government sales reached their lowest level in more than a decade. Sales were down more than half year on year due to a large drop in Russian sales along with continued absence of Chinese and Indian sales.

• Old silver scrap, the second-largest source of silver supply after mine production, continued its decline in 2009. Scrap supplies totaled about 165.7 million oz in 2009, versus 176 million oz in 2008. The largest single contributor to silver scrap recycling is the photographic sector. The ongoing shift toward digital cameras from traditional photographic film cameras is sharply reducing the demand for silver nitrates, and hence the supply of silver scrap from the photographic sector. Recovery from medical equipment also remained soft during the year. Consequently, we expect a continued decline in scrap sales in the next few years, though scrap sales will still remain a big source of supply due to recycling of jewelry and silverware.

Source: GFMS.

Mine production (million Oz)

640.9664.4

684.7

709.6

600

620

640

660

680

700

720

2006 2007 2008 2009

millionOz

Source: GFMS.

Net Government sales (Million oz)

13.7

78.2

42.527.6

0

10

20

30

40

50

60

70

80

90

2006 2007 2008 2009

millionOz



• Jewelry and silverware was estimated to have increased marginally in 2009, primarily due to strong recycling activity in India, as silver prices in rupee terms recorded a 10% year on year gain in the country.

2010 Silver Supply. ForecastMine production remains by far the largest component of silver supply accounting for around 78% of the total supply in 2009. For 2009, according to the estimates, the mine output is expected to increase by an additional 15 million oz. The charts below illustrate the global supply of silver for 2008 and 2009 (based on forecasts done in Nov 2009).

Case of derived supply. Almost 65% of silver supply is either a co- or by-product of production as a natural consequence of the mining of copper, lead, zinc and gold. Thus, silver gets mined irrespective of the silver price. The following charts indicate the silver output by source metal for 2008 and 2009.

Source: GFMS.

Old Silver scrap (million Oz)

188181.8

176

165.7

150

155

160

165

170

175

180

185

190

2006 2007 2008 2009

(millionOz)

21

29.1%

10.4%

36.5%

23.5%

0.5%

Silver Output By SourceMetal: 2008

Primary Gold Lead/Zinc Copper Other

30.1%

12.2%33.9%

23.4%

0.4%

Silver Output By SourceMetal: 2009

Primary Gold Lead/Zinc Copper Other

Source: GFMS

As per the chart, silver price has consistently moved in line with the price of other metals. Higher pricesof other metals lead to higher production of such metals resulting in higher supply of silver as a byproduct. Hence by product silver production depends on production of other metals, which is afunction of prevailing market prices.

0%

100%

200%

300%

400%

500%

600%

700%

800%

900%

May 01 May 02 May 03 May 04 May 05 May 06 May 07 May 08 May 09 May 10

Silver AndOtherMetals: IndexedPriceMovement

Lead Copper Zinc Silver Gold

Source: Bloomberg

Geographic coverage for Silver mining



As per the below chart, the silver price has consistently moved in line with the price of other metals. Higher prices of other metals lead to higher production of such metals resulting in higher supply of silver as a by-product. Hence by-product silver production depends on production of other metals which is a function of prevailing market prices.

Geographic coverage for Silver mining

• Peru was the largest producer of silver in 2008 with production of 118 million oz. The Americas, which include 6 of the 10 largest silver producing countries, contribute to nearly half of global silver production.

Source: Bloomberg

Silver And Other Metals: Indexed Price Movement

0%

100%

200%

300%

400%

500%

600%

700%

800%

900%



Source: GFMS

Top 25 Silver producing countries in 2008 (Millions of ounces)

123.9

104.789.1

52.642.6 42.2 41.8

21.7 19.6 17.1 14.0 8.7 8.3 7.7 7.3 4.2 3.5 2.6

39.839.2

0

20

40

60

80

100

120

140

Peru

Mexico

China

Australia

Bolivia

Russia

Chile

United States

Poland

Kazakhstan

Canada

Argentina

Turkey

Sweden

Morocco

Indonesia

India

Guatermala

Iran

South Africa



• A handful of mines account for the bulk of global primary silver output. Silver Standard’s Pirquitas mine is one of the largest primary silver mines in the world (produced approximately 6 million oz of silver in 2009 and expected to produce approximately 10 million oz in 2010).

• Bolivia has reasonably high silver resources, although the silver extracting companies are few. It might be due to high geo-political risk perceived by the investors.

Silver Demand

Demand for silver comes from both industrial applications as well as from investment in the form of ETFs, coins and jewelry. It has a wide variety of special applications in the areas of power transmission, germicide and anti-bacterial agents, solar cells, water purification, catalytic agents, soldering products, bearings, batteries, and photography.

• The global demand for silver in 2009 stood at 889 million oz. Fabrication demand fell by 11.9% year on year to 730 million oz mainly due to the impact of the global recession. Accelerated decline in photographic demand also contributed to the fall in fabrication. This was the second consecutive year of decline in fabrication demand, after a 1.6% drop in 2008.

23

World Silver Demand (million ounces)

2001 2002 2003 2004 2005 2006 2007 2008 2009

Demand

Fabrication

Industrial Applications 335.2 339.1 349.7 367.1 405.1 424.5 453.5 447.2 352.2

Photography 213.1 204.3 192.9 178.8 160.3 142.4 124.8 104.8 82.9

Jewelry 174.3 168.9 179.2 174.9 173.8 166.3 163.5 158.3 156.6

Silverware 106.1 83.5 83.9 67.3 67.8 61.2 58.8 57.3 59.5

Coins & Medals 30.5 31.6 35.7 42.4 40.0 39.8 39.7 64.9 78.7

Total Fabrication Demand 859.2 827.4 841.4 830.5 847.0 834.2 840.3 832.5 729.8

Producer De Hedging 24.8 20.9 6.8 23.5 5.6 22.3

Implied Net Investment 11.7 7.0 37.7 69.6 66.6 24.7 50.2 136.9

Total Demand 870.9 852.2 869.3 868.2 916.7 907.5 888.4 888.4 889.0Source: World Silver Survey 2009 compiled by GFMS Ltd.

The global demand for silver in 2009 stood at 889 million oz. Fabrication demand fell by 11.9%year on year to 730 million oz mainly due to the impact of the global recession. Accelerateddecline in photographic demand also contributed to the fall in fabrication. This was the secondconsecutive year of decline in fabrication demand, after a 1.6% drop in 2008.

836.4 842.5828.6

729.8

660

680

700

720

740

760

780

800

820

840

860

2006 2007 2008 2009

Millions

Oz

FabricationDemand (millionOz)

Industrial fabrication accounted for the bulk of decline in fabrication demand, falling by 20.6% toa six year low of 352.2 Moz (10,955 tones), in the process eclipsing 2001’s technology relateddecline. The drop in industrial demand was largely a first half event, brought about by a slump inorders and an extended period of pipeline destocking.

Source: Bloomberg

Fabrication Demand (million Oz)

836.4 842.5828.6

729.8

660680700720740760780800820840860

2006 2007 2008 2009

Millions

Oz

RedChip Visibility | �0 | South American Silver Corp.


• Industrial fabrication accounted for the bulk of decline in fabrication demand, falling by 20.6% to a six-year low of 352.2 Moz (10,955 tons), in the process eclipsing 2001’s technology-related decline. The drop in industrial demand was largely a first half event, brought about by a slump in orders and an extended period of pipeline destocking.

• Like gold producers, silver producers have tended to close out or buy back hedges in recent years. According to the Silver Survey, de-hedging contributed 22.3 million oz of demand in 2009, up from 11.6 million oz in 2008. The global silver hedge book as a percentage of total mine production is estimated to be low; consequently, we expect de-hedging to decline in the coming years.

World Silver Demand 2010 Forecast. Silver demand is dominated by the industrial applications category, which accounts for approx 39% of total demand in 2009 as against 51% in 2008.

Source: Bloomberg

Industrial applications (million oz)

427456.1 443.4

352.2

0

100

200

300

400

500

2006 2007 2008 2009

Millions

Oz

Source: GFMS

5.00%

24.00%

12.00%7.00%

1.00%

51.00%

Coins De Hedging Industrial

Investment Jewelry and Silverware Photography

World Silver Demand 20092%

15%

25%

10% 9%

39%

Coins De Hedging Industrial

Investment Jewelry and Silverware Photography

World Silver Demand 2010E



Silver Demand

Fabrication demand covers silver’s use in industry, photography, jewelry manufacturing and in the making of coins.

Industrial demand has fallen sharply in 2009, due to the severity of the economic downturn. In 2010, however, a rebound is expected, given an improvement in global GDP, industrial production and stock replenishment.

Jewelry & Silverware fabrication, on a combined basis, was largely flat in 2009, declining by a modest 0.4% year on year. Softness in major western and far-eastern/southeast Asian jewelry markets were largely offset by strong demand in India and China. Silver has benefited in several important jewelry markets from substitution at gold’s expense. However, the weak economy and high silver prices have also restrained growth in demand. Moreover, some of the rise in fabrication reflects an increase in trade stocks in India, where surging local prices have constrained incremental consumer demand at higher prices.

Photographic use of silver dropped by approximately 21% in 2009 as demand continues to be affected by the switch to digital technology. Silver usage in the cinematic industry has also been hit hard, as a lack of financing has led to a drop in the number of films produced.

Investment Demand in silver continued to surge in 2009, rising by a whopping 90% following an 84% rise in 2008, as investors flocked to the metal in search of a safe haven amid global financial turmoil. Much of the surge took place in the early part of 2009, and was dominated by demand for physical metal and ETFs, as investors sought refuge in silver when fears over counterparty risk and the overall financial system remained rampant. Overall, the January-October 2009 timeframe saw a 3,110-tonne rise in ETF holdings coupled with an increase of 5,306 tonnes in the ‘investor’ net long positions in Comex futures. Investors’ bullion stocks have increased substantially in FY09 on a net basis. We expect investment demand to rise further in the near future owing to the Euro zone sovereign debt problems. However, over the long term, conditions should eventually become less supportive of investment demand as some level of GDP growth returns for the global economies.

Physical Demand/Supply Balance – Moving from a Deficit to Surplus. The chart below shows the physical demand/supply balance, excluding investment demand. As seen from the chart, industry dynamics have undergone a structural shift, with demand lagging supply for the first time in the last 10 years in 2008. Lower industrial production worldwide has reduced the demand for silver in electronic, electrical, and other manufacturing processes, while shrinking consumer income has eroded the demand for silver jewelry.

26

Source: World Silver Survey 2009 (prepared by GFMS)

Meanwhile, mine supply growth is increasing, with greater primary mine production more thancompensating for lower mine byproduct output.Luke stopped reading and graphing here on 6 10 2010 at 5:58pmNew uses of silver in industrial applications to drive demand in the long termWhile the price of silver is currently benefiting from its precious metal status, it will undoubtedly be itsindustrial properties in future years that will ensure physical demand endures (well after the currentinvestment cycle subsides), with the metal expected to play a pivotal role in new industrial applications.While main growth areas in the past has been electronics and photographic equipment, novel areas ofsilver demand are likely to emerge from renewable energy and health sectors. Over the last decade, thephotovoltaic (PV) industry has emerged as a significant user of silver. The PV industry’s silver use isestimated to have reached 28 million oz in 2009. Industry projections put silver off take at 186 million ozby 2020. Silver’s use as an anti bacterial substance in medical equipment and applications, as well as inhousehold applications is expected to be boosted in the future once new technologies using silver gainacceptance.

SILVER PRICE OUTLOOKSilver is currently trading around the $18 /oz level, below 17 March 2008 high of $20.92/oz, but wellabove the 4 year low of $8.97/oz on 10 October 2008.

Silver prices have been buoyed by investor demandThe silver demand is likely to get most of its growth from investment demand (Investments accountedfor 15% of demand in 2009 as against 5% in 2008), especially with the economic uncertainty surroundingthe Euro zone and the macroeconomic imbalances in the US. Hence despite reduced fabricationdemand, silver prices rallied (along with other assets including gold and oil) between April October2009, before undergoing a correction in November December, following which the EU crisisorchestrated the ongoing rally. The general expectation among investors is that aggressive monetary

Deleted:

RedChip Visibility | �� | South American Silver Corp.


Meanwhile, mine supply growth is increasing, with greater primary mine production more than compensating for lower mine byproduct output.

New uses of silver in industrial applications to drive demand in the long-termWhile the price of silver is currently benefiting from its precious metal status, it will undoubtedly be its industrial properties in future years that will ensure physical demand endures (well after the current investment cycle subsides), with the metal expected to play a pivotal role in new industrial applications. While main growth areas in the past have been electronics and photographic equipment, novel areas of silver demand are likely to emerge from the renewable energy and health sectors. Over the last decade, the photovoltaic (PV) industry has emerged as a significant user of silver. The PV industry’s silver use is estimated to have reached 28 million oz in 2009. Industry projections put silver offtake at 186 million oz by 2020. Silver’s use as an anti-bacterial substance in medical equipment and applications, as well as in household applications, is expected to be boosted in the future once new technologies using silver gain acceptance.

SILVER PRICE OuTLOOk

Silver is currently trading around the $18 /oz level, below the March 2008 high of $20.92/oz, but well above the 4-year low of $8.97/oz in October 2008.

Silver prices have been buoyed by investor demand. The silver demand is likely to get most of its growth from investment demand (Investments accounted for 15% of demand in 2009 as against 5% in 2008), especially with the economic uncertainty surrounding the Euro zone and the macroeconomic imbalances in the U.S.. Hence despite reduced fabrication demand, silver prices rallied (along with other assets including gold and oil) between April-October 2009, before undergoing a correction in November-December, following which the EU crisis orchestrated the ongoing rally. The general expectation among investors is that aggressive monetary easing and heavy deficit spending by the U.S. and other major economies would lead to higher inflation and weakened fiat currencies over the longer term.

Silver is also highly correlated to base metals. Owing to its large industrial demand (far more than other precious metals, such as gold and platinum), silver prices tend to move in tandem with other base metals, such as copper, lead and zinc. This correlation is also influenced by the fact that bulk of the silver production is in the form of a by-product from producing other base metals.

Source: Bloomberg

Silver And Other Metals: Indexed Price Movement

0%

100%

200%

300%

400%

500%

600%

700%

800%

900%





As the chart shows, silver tanked along with other base metals since the onset of the recession in the U.S., even as gold, due to its safe haven demand, was on the rise.

ETFs are a favored investment option for investors. Along with physical demand for coins and bars, silver ETFs have been a favored investment vehicle to seek exposure to silver. Like the gold ETFs, the silver ETFs have been popular, absorbing substantial amounts of bullion and effectively replacing speculators and hedge funds as the principal source of investor demand. The data from the Commodity Futures Trading Commission (CFTC) shows that silver’s net long speculative positions amounted to 166 million oz at end-July 2009, above the 125.8 million oz low of the year set in April 2009, but still well below the peak of 378.9 million oz in February 2008.

While Comex positions (speculative long positions) are responsive to prices (with long positions increasing on rally in silver prices and vice versa), ETF funds have been increasing positions regardless of price direction. Though liquidation of ETFs would have a negative impact on silver prices, we view ETFs as long-term investors having a stabilizing effect on the price, and thus should be favorable for our long-term bullish outlook for silver.

MARkET FOR INdIuM

Production: With an abundance in the Earth’s continental crust of 0.05 parts per million (ppm) and its oceanic crust of 0.072 ppm, indium is somewhat more abundant than its lookalike, silver. However, since it does not occur in the same concentrations as silver, indium is never mined in its own right. Instead, like many other strategic and minor metals, indium is mined as a by-product of the production of other ore. Traditionally, the largest source of indium has come as a by-product of zinc production. As a result, indium production and prices tends to be fairly correlated to zinc production.

Extraction rates remain small, while processing and recycling is largely wasteful: Historically, less than 20 percent of the indium content in concentrates is extracted. Even with modern technological improvements, producers can only extract 30 percent of the 1,500 mt of indium mined every year worldwide, according to the Indium Corporation of Utica, NY. Moreover, considerable quantities of the metal remain to be recovered both through extractions from unprocessed base metal concentrates and through recycling. 30% of the indium in base metal concentrates never reaches the smelter. Of the remaining 70%, the final average rate of extraction of the metal is only around 50%. Therefore, there is currently a great deal of indium-bearing concentrate that could be processed but goes wasted currently. Additionally, the sputtering process is extremely wasteful, with less than 30% of the ITO actually ending up on the panel. The remaining 70% ends up on the walls of the sputtering chamber, the substrate and in the grinding sludge. While 60-65% of that indium can now be recovered, the remainder still goes wasted. An increase in recovery rates will only come from improvements in recycling methods.

Indium Demand: Eighty percent of indium demand is for electronics applications, primarily for fabrication of thin uniform film indium-tin oxides (ITO) on glass, which create unique optically transparent electrical conductors for LCDs. The growing usage in CIGS (copper-indium-gallium-selenides) in the manufacture of thin film photovoltaic (PV) applications in solar panels has potentially a greater demand than its use in LCDs with growing interest in developing alternative energy resources. Presently CIGS applications account for only 6% of demand.



Indium Prices: The U.S. producer price for indium remained at $500 per kilogram from the start of 2009 through mid-October. The New York dealer price range for indium began the year at $350 to $400 per kilogram, decreased steadily until mid-July reaching a low of $290 to $340 per kilogram, and then rose until at least mid-October to $495 to $510 per kilogram.

Refinery Production and Reserves: China is the world’s largest refiner of the metal, using feedstock either produced domestically or imported from abroad. China has held on to its leadership position in indium refining for the last five years at least, with Japan coming a distant second.

Outlook. The total market for indium has experienced annual growth averaging over 10% for the past 5- 6 years and is expected to grow at a similar rate for the foreseeable future. The forecast growth in indium demand will be largely met by an increase in recycling, initially in Japan and later in the rest of the world. Increased production of secondary indium will meet much of the projected increase in demand over the years.

COMPETITIVE L ANdSC APE

We have classified silver companies into three categories as small, medium and large silver players based on the Company’s market capitalization (which, in our opinion, reflects the Company’s total reserves and resources). Details of some of SAC’s competitors are presented below:

Alexco Resource Corp. (Alexco): Alexco operates two principal businesses: mineral exploration and development in Canada, primarily in the Yukon Territory, and provision of consulting and project management services in respect of environmental permitting and compliance and site remediation and reclamation, both in Canada and the United States. Alexco’s principal mineral exploration activities in the Yukon are being carried out within the Keno Hill district. Alexco’s material property within the Keno Hill district is the Bellekeno property. Alexco holds several other property interests within the district, including but not limited to Onek, Lucky Queen and Silver King.

Bear Creek Mining Corporation (Bear Creek): Bear Creek is a Canada-based company. Bear Creek is engaged in acquiring and exploring mineral properties, principally located in Peru. Bear Creek controls

Refinery production 2008 2009 2008 2009

China 310 300

Korea Republic 75 85

Japan 65 60

Canada 45 50

Belgium 30 30

Other countries 25 30

Peru 6 20

Russia 12 12

Brazil 5 10

United StatesSource: Bloomberg



a 100% interest in the Santa Ana silver project. The property is comprised of 6,300 hectares located in the Puno region in southern Peru. Bear Creek has completed 55,574 meters of drilling in 306 drill holes. Bear Creek owns 100% interest in the 1,000 hectares Antash concession. On 17 July 2008, Bear Creek completed its 100% acquisition of the Corani Project from Rio Tinto Mining and Exploration Limited (Rio Tinto).

ECU Silver Mining Inc. (ECU): ECU is engaged in gold, silver and base metals exploration and development, and has its mining operations in the Velardena mining district of Mexico. ECU owns three properties located in the Velardena mining district. These properties, collectively known as the Velardena District Properties are comprised of the Velardena Property, the Chicago Property and the San Diego Property. The Velardena Property contains the Santa Juana mine. The property consists of 20 contiguous mineral concessions totaling 233.2 hectares. The Chicago Property is located approximately two kilometers south of the Velardena Property. This property contains the historical Los Muertos-Chicago mine and consists of eight contiguous mineral concessions, totaling 315.88 hectares.

Kimber Resources Inc. (Kimber): Kimber is a Canada-based exploration-stage company, engaged in the acquisition and exploration of mineral right interests in Mexico. Kimber focuses on gold-silver exploration in Mexico. Kimber’s mineral rights are located in the states of Chihuahua and Estado de Mexico, Mexico. Kimber owns three exploration projects located in Mexico. The principal project is Monterde, which is 29,266 hectares in size and is located in the prolific Sierra Madre Gold-Silver belt of Northern Mexico. The Monterde project hosts substantial gold-silver mineralization and has three deposits located within two kilometers of each other. Kimber owns a 100% interest in the El Coronel mineral concessions.

MAG Silver Corp. (MAG): MAG is engaged in the mineral acquisition, exploration and development business. MAG’s property interests are located in Mexico. MAG’s two properties include its 44% joint venture interest in the Juanicipio property and the 100% owned Cinco de Mayo property. MAG’s subsidiary, Minera Los Lagartos, S.A. DE C. V. (Lagartos) is the owner of a 44% interest in Minera Juanicipio, S.A. DE C.V. (Minera Juanicipio) and Fresnillo plc (Fresnillo).

Minco Silver Corporation (Minco Silver): Minco Silver is engaged in the acquisition, exploration and development of silver mineral properties in the People’s Republic of China. Minco Silver has a 100% interest in Foshan Minco with the 10% carried interest in Foshan Minco in the Fuwan Silver Deposit, situated along the northeast margin of the Fuwan Silver Belt in Guangdong Province, People’s Republic of China. Minco Silver has a 51% interest in the Changkeng Silver Interest. Minco Silver has interests in three additional silver exploration permits in China, referred to as the Guanhuatang Property, the Luoke-Jilinggang Property and the Guyegang-Sanyatang Property.

Orko Silver Corp. (Orko Silver): Orko Silver is an exploration-stage company. The Company is engaged in the acquisition and exploration of mineral resources in Mexico either directly or through its investment in Proyectos Mineros La Preciosa S.A.

Silvermex Resources Ltd. (Silvermex): Silvermex is an exploration-stage company. Silvermex is engaged in the acquisition, exploration and evaluation of mineral resource properties in Mexico, through its wholly owned subsidiary, Minera Terra Plata, S.A. de C.V. Its property portfolio includes Penasco Quemado Project; Lobos Project; Cerro de Plata Project; Lety Project; El Rayo Project; San Marcial Project and La Frazada Project.



Sabina Gold & Silver Corp. (Sabina): Sabina is a mineral exploration company. Sabina focuses on the acquisition, exploration, and development of mineral resource properties. Sabina is primarily focused on its Hackett River silver-zinc project in Nunavut in the Canadian Arctic. Sabina also has exploration properties in the Red Lake gold camp in Ontario and the Del Norte silver-gold project in the Stewart-Eskay Creek mining district, in British Columbia. Sabina’s Hackett River project consists of approximately 10,637 hectares and is located approximately 480 kilometer (km) north east of Yellowknife, and approximately 75 km from Bathurst Inlet.

Silver Crest Mines Inc. (Silver Crest): Silver Crest is a Canada-based exploration and development company with a portfolio of silver-gold deposits. Silver Crest’s properties include the Santa Elena project and the Cruz de Mayo project in Sonora, Mexico. As of December 31, 2008, Silver Crest has completed a total of 98 core holes, four geotechnical core holes, and 21 reverse circulation drill holes in Santa Elena project. Silver Crest completed a Phase II drill program on Cruz de Mayo project, which included a 27 reverse circulation (RC) drill hole program totaling 2,907 meters. RC drilling was completed and a total of 10 holes measuring approximately 2,000 meters were drilled to test the Cruz de Mayo mineralization trending to the north-northwest.

30

Name MajorAssets

EV (C$million)

Reserves/Resources(million oz)

Stake Key highlights

OremexResources Inc

TejamenProperty(Mexico)

8.97 47.5 100% To date, Oremex has completed 240drill holes for a total of 37,500 metresof drilling on the property. TheCompany expects to increase theresource base through additionaldrilling programs. The Tejamenmineral resource remains open atdepth and along trend.

SilvermexResources Ltd

PenascoQuemadoproject , SanMarcialproject(Mexico)

32.63 42.3 100% Well financed with over US$6 million inworking capital and Resources situatedin near surface, potentially bulkmineable deposits

SilvercrestMines Inc

High gradepreciousmetalsproperties inMexico(Santa Elenaand Cruz demayo) andEl Salvador

39.76 62.4 100% Expected to start commercialproduction in 2010

KimberResources Inc

Monterde(Mexico)

68.28 54.1 100% NA

Minco SilverCorp

Fuwan Silverdepositlocated insoutheastern China

68.13 156.8 90% The Fuwan property is one of the fewmineral projects in the world thatalready has a significant infrastructurein place, which is expected to save thecompany in development costs.

AlexcoResource Corp

Bellekeno,Onek, LuckyQueen,Silver King(Canada)

195. 14 217.1 NA Undertaking construction activity atBellekeno mine after explorationprogram in 2009.

Orko SilverCorp

La Preciosasilverproject(Mexico)

187.04 135.3 45% On April 14th, 2009 Pan AmericanSilver Corp. and Orko Silver agreed fora joint venture to develop the LaPreciosa project. Pan American willcontribute 100% of the funds inconsideration for a 55% interest in thejoint venture. Orko Silver retains a



30

Name MajorAssets

EV (C$million)

Reserves/Resources(million oz)

Stake Key highlights

OremexResources Inc

TejamenProperty(Mexico)

8.97 47.5 100% To date, Oremex has completed 240drill holes for a total of 37,500 metresof drilling on the property. TheCompany expects to increase theresource base through additionaldrilling programs. The Tejamenmineral resource remains open atdepth and along trend.

SilvermexResources Ltd

PenascoQuemadoproject , SanMarcialproject(Mexico)

32.63 42.3 100% Well financed with over US$6 million inworking capital and Resources situatedin near surface, potentially bulkmineable deposits

SilvercrestMines Inc

High gradepreciousmetalsproperties inMexico(Santa Elenaand Cruz demayo) andEl Salvador

39.76 62.4 100% Expected to start commercialproduction in 2010

KimberResources Inc

Monterde(Mexico)

68.28 54.1 100% NA

Minco SilverCorp

Fuwan Silverdepositlocated insoutheastern China

68.13 156.8 90% The Fuwan property is one of the fewmineral projects in the world thatalready has a significant infrastructurein place, which is expected to save thecompany in development costs.

AlexcoResource Corp

Bellekeno,Onek, LuckyQueen,Silver King(Canada)

195. 14 217.1 NA Undertaking construction activity atBellekeno mine after explorationprogram in 2009.

Orko SilverCorp

La Preciosasilverproject(Mexico)

187.04 135.3 45% On April 14th, 2009 Pan AmericanSilver Corp. and Orko Silver agreed fora joint venture to develop the LaPreciosa project. Pan American willcontribute 100% of the funds inconsideration for a 55% interest in thejoint venture. Orko Silver retains a

31

45% interest fully carried toproduction.

ECU SilverMining Inc

VelardenadistrictProperties,Mexico

228.54 431.2 100% Company achieved an average dailythroughput of 650 tpd in last twomonths of 2009 much above its targetof 500tpd.Undergoing pre feasibility study atone of the larger mills in Velardena.

Bear CreekMining Corp

Peru (Coraniand SantaAnaProjects)

319.12 500.2 100% The company's 100% held Tassasilver gold prospect is undergoingexplorationFurther drilling is in progress at its twoadvanced development projects;Santa Ana and Corani.

TahoeResources, Inc.

Escobalsilverproject,Guatemala

505.00 334.45 100% Acquired the property from Goldcorpfor $505 million, financed through anIPO, which was the second largest inCanada this year.

MAG SilverCorp

Juanicipio,Cinco deMayo,Mexico

356.69 189.4 44% Recently conducted independentscoping study at Juanicipio mines.Undertaking drilling activities at Cimcode mayo.

Source: Various company websites and search engines



MANAGEMENT TEAM ANd bOARd OF dIREC TORS

Greg Johnson, President and CEO. Mr. Johnson was appointed as President and Chief Executive Officer of South American Silver Corp. in April 2010. As an exploration geologist with more than 20 years of experience in the mining industry, Mr. Johnson brings considerable corporate finance, project development and exploration experience to the Company. He most recently served at NovaGold Resources as Vice-President, Strategic Development, where during his 12 years there he was part of the team that grew NovaGold from a $10-million market capitalization to nearly a $2-billion company. While at NovaGold, Mr. Johnson was prominently involved with the acquisition and advancement of three world-class deposits, including the completion of three feasibility studies. He was a co-winner of the respected Thayler Lindsay International Discovery Award for his role in the discovery and advancement of the 40-million-ounce Donlin Creek gold deposit in Alaska. Mr. Johnson began his career with Placer Dome Inc., where he worked in the U.S. and International Exploration Groups with responsibilities for several projects from early discovery stage to development and operations. He graduated with honors from Western Washington University, where he earned a B Sc. in Geology. Mr. Johnson has served as a director of the Company since May 2009.

Ralph Fitch, Executive Chairman & Director. Mr. Fitch, one of the founders of South American Silver Corp., High Desert Gold Corporation and previously, General Minerals Corporation, is an exploration geologist with over forty years of international exploration management and field experience. His prior positions included Chief Geologist (Worldwide) and Manager of U.S. Exploration for the Chevron Minerals Group. His extensive exploration experience includes work in South America, Australia, West Africa, South Africa and the United States. Mr. Fitch is credited with a number of major international discoveries and was awarded the Chevron Chairman’s Award for his part in the discovery of the Ujina deposit at the Collahuasi copper porphyry project in Chile. As Chief Geologist for Chevron, he also directed the ore reserve estimations for the Lisheen zinc project in Ireland, another Chevron discovery, and the Stillwater platinum group metals project in Montana. Earlier in his career he was involved in the discovery at the Bend and Horseshoe massive sulphide deposits in Wisconsin, the Henkries uranium deposit in South Africa, the Coppins Gap Archaen porphyry copper molybdenum deposit in West Australia, and the Pah-My-Yah diamond field in Liberia. Mr. Fitch received his B.Sc. (Special) Honours Degree in Geology from the Imperial College of Science and Technology, London.

Felipe B Malbran, Vice President, Exploration South America. Prior to the formation of SASC, Mr. Malbran served as vice president of Exploration South America (1995-2006) for General Minerals Corporation; in addition, his career includes work as a consultant for base and precious metals exploration in Chile, project geologist for base metals exploration in Chile with Min. Cominco Resources Chile (1991-1994), and as project geologist for base and precious metals exploration with Geoestudios Consultants (1983-1990). Mr. Malbran has a wealth of experience in both economic geology and geotechnical and regional geology; he received his degree in geology from the University of Chile in 1983.

Richard Doran, Vice President. Mr. Doran has been associated with South American Silver since its beginning and currently serves as the Executive Vice President of investor relations and corporate secretary. Prior to joining General Minerals, Mr. Doran served as the North American marketing manager for the European-based metals company Union Miniere. He was the commercial manager for Chevron



Corporation’s mining division from 1985 through 1994. Prior to this, he was marketing research manager for Getty Mining Company. Mr. Doran holds a professional engineering degree in metallurgical engineering from the Colorado School of Mines and an M.S. degree in mineral economics from Pennsylvania State University. He completed additional graduate studies in international economics at the University of Denver.

Peter Harris, Director. Mr. Harris is a consulting engineer with over 40 years of mining industry experience including experience as Senior VP and Chief Operating Officer at Nova Gold Resources Inc., and Senior VP of Project Development at Placer Dome Inc. Mr. Harris has been involved in the construction and operation of over 20 different mines in North and South America, Africa, Australia and Papua New Guinea.

William Murray, Director. Mr. Murray is an engineer in the mining industry with over 33 years of experience in construction management and project evaluation in North America and Africa. He currently serves as the executive chairman and director of Polymet Mining Corp. Mr. Murray has been involved in numerous successful projects while working at Fluor Daniel, Denison Mines, Optimum Project Services and Anglo American Corp. in South Africa.

Paul Haber, Director. Mr. Paul Haber is a Chartered Accountant and a Certified Public Accountant with a strong background in US/Canadian accounting and finance. He is presently managing the private company Haber & Co. Ltd. Prior to March 2007, he was Vice-President, Chief Financial Officer and Corporate Secretary of a TSX Venture Exchange listed company.

John W. Paul, Director. Mr. John W. Paul held various legal positions with Chevron Corporation over the period of 1988 to 2005. He holds B.B.A., M.B.A. and J.D.

John Watson, Director. Mr. John E. Watson has been the President of a TSX Venture Exchange listed company since 2002. He is also the manager/member of a limited liability corporation that owns and manages commercial real-estate.

Tina Woodside, Director. Ms. Woodside is currently the head of the corporate finance department in Gowlings’ Toronto office and a member of the firm’s National Executive Committee. Ms. Woodside practices corporate and securities law with particular emphasis on corporate finance, mergers and acquisitions and corporate governance matters. Ms Woodside was seconded to the Ontario Securities Commission in 1993 and became a partner in 1996. Ms. Woodside was listed in Lexpert Magazine as one of Canada’s 15 Women Lawyers to Watch and was awarded the BV rating in Martindale-Hubbell.


South American Silver Corp. (TSX: SAC)InItIal RepoRtFInancIal StatementS

Quarterly Income StatementAll Figures in US$FY Ending December 31, 1Q09 2Q09 3Q09 4Q09 1Q10

Total Revenue - - - - -Cost of Sales - - - - -Gross Profit - - - - -

Expenses and Other ItemsGeneral and Administrative expensesConsulting 24,188 36,485 19,422 75,790 39,792Depreciation and Amortization 6,685 5,989 6,834 8,845 9,737Director's Fees 19,500 19,550 15,750 15,750 29,250Filing and transfer agent fees 30,447 2,984 (2,632) 3,628 33,946Office and Administration 56,518 63,193 51,894 54,542 58,218Professional Fees 66,204 34,017 27,914 68,416 103,463Reconnaissance and Sundry Exploration 35,171 15,704 7,043 15,101 11,829Shareholder information 39,284 96,587 43,962 83,250 132,736Stock-based compensation 183,359 120,609 121,953 122,522 90,482Wages and benefits 66,726 50,924 53,285 106,403 78,946Provision for value added tax credits - - - - -Operating Income (Loss) (528,082) (446,042) (345,425) (554,247) (588,399)

Other Income (expense)Interest and other income 3,170 1,248 1,046 1,200 1,133Foreign currency gain (loss) (22,119) 48,424 29,723 26,900 14,336Loss on disposal of assets (631) - - - -Write-down of mining claims - - - - -Net loss and comperhensive loss for the period (547,662) (396,370) (314,656) (526,147) (572,930)

EPSBasic (0.01) (0.01) (0.01) (0.01) (0.01)Diluted (0.01) (0.01) (0.01) (0.01) (0.01)Shares OutstandingBasic 50,676,295 51,456,665 51,456,665 54,455,000 60,235,879Diluted 50,676,295 51,456,665 51,456,665 54,455,000 60,235,879



Annual Income StatementAll Figures in US$FY Ending December 31, FY07 FY08 FY09

Total Revenue - - - Cost of Sales - - - Gross Profit - - -

Expenses and Other ItemsGeneral and Administrative expensesConsulting 132,874 117,855 155,885 Depreciation and Amortization 36,619 45,501 28,353 Director's Fees 58,000 62,500 70,550 Filing and transfer agent fees 42,303 50,603 34,427 Office and Administration 143,727 208,530 226,147 Professional Fees 219,589 212,712 196,551 Reconnaissance and Sundry Exploration 16,160 10,600 73,019 Shareholder information 96,137 178,404 263,083 Stock-based compensation 1,507,714 1,031,578 548,443 Wages and benefits 291,807 200,326 277,338 Provision for value added tax credits 160,846 - - Operating Income (Loss) (2,705,776) (2,118,609) (1,873,796)

Other Income (expense)Interest and other income 576,463 231,992 6,664 Foreign currency gain (loss) 119,048 (211,679) 82,932 Loss on disposal of assets - - (631) Write-down of mining claims - (1,023,677) - Net loss and comperhensive loss for the period (2,010,265) (3,121,973) (1,784,831)

EPSBasic (0.05) (0.06) (0.03) Diluted (0.05) (0.06) (0.03) Shares OutstandingBasic 42,710,466 49,831,438 52,011,146Diluted 42,710,466 49,831,438 52,011,146



Quarterly Balance SheetAll Figures in US$FY Ending December 31, 1Q09 2Q09 3Q09 4Q09 1Q10

AssetsCurrent assetsCash and cash equivalents 6,564,682 5,718,880 5,051,663 7,013,973 5,814,496Receivables and prepaids 76,993 71,441 52,862 75,138 140,840Total current assets 6,641,675 5,790,321 5,104,525 7,089,111 5,955,336

Mining claims and deferred exploration costs 6,872,859 7,465,736 7,918,994 8,675,051 9,425,714Equipment 30,807 66,598 69,973 94,305 87,877Total non-current assets 6,903,666 7,532,334 7,988,967 8,769,356 9,513,591Total assets 13,545,341 13,322,655 13,093,492 15,858,467 15,468,927

Liabilities and shareholders' equityCurrent liabilitiesAccounts payable and accrued liabilities 194,097 240,445 194,092 462,017 507,851Total current liabilities 194,097 240,445 194,092 462,017 507,851Total liabilities 194,097 240,445 194,092 462,017 507,851

Shareholders' equityShare capital 44,891,866 44,891,866 44,891,866 47,251,095 47,866,568Contributed surplus 1,894,969 2,022,305 2,154,151 2,818,115 2,340,198Deficit (33,435,591) (33,831,961) (34,146,617) (34,672,760) (35,245,690)Total shareholders' equity 13,351,244 13,082,210 12,899,400 15,396,450 14,961,076Total liabilities and shareholders' equity 13,545,341 13,322,655 13,093,492 15,858,467 15,468,927



Annual Balance SheetAll Figures in US$FY Ending December 31, FY07 FY08 FY09

AssetsCurrent assetsCash and cash equivalents 12,870,407 7,422,870 7,013,973Receivables and prepaids 76,950 50,396 75,138 Total current assets 12,947,357 7,473,266 7,089,111

Mining claims and deferred exploration costs 3,180,496 6,454,790 8,675,051Equipment 59,575 37,209 94,305 Total non-current assets 3,240,071 6,491,999 8,769,356Total assets 16,187,428 13,965,265 15,858,467

Liabilities and shareholders' equityCurrent liabilitiesAccounts payable and accrued liabilities 419,509 255,144 462,017 Total current liabilities 419,509 255,144 462,017 Total liabilities 419,509 255,144 462,017

Shareholders' equityShare capital 43,660,920 44,276,393 47,251,095Contributed surplus 1,872,955 2,321,657 2,818,115Deficit (29,765,956) (32,887,929) (34,672,760)Total shareholders' equity 15,767,919 13,710,121 15,396,450Total liabilities and shareholders' equity 16,187,428 13,965,265 15,858,467



Quarterly Cash Flow StatementAll Figures in US$FY Ending December 31, 1Q09 2Q09 3Q09 4Q09 1Q10

Cash flow from operating activitiesNet Income (547,662) (396,370) (314,656) (526,143) (572,930)Depreciation and amortization 6,685 5,989 6,834 8,845 9,737Gain on disposal of investments / assets (631) - - - -Investor relation fees settled by warrants - - - - 36,282Write-down of mining claims - - - - -Stock based compensation 183,359 120,609 121,953 122,522 90,482Change in receivables and prepaids (26,597) 5,552 18,579 (22,276) (65,702)Change in accounts payable 12,380 (42,679) (44,441) 226,926 (89,222)Cash flow from operating activities (371,204) (306,899) (211,731) (190,126) (591,353)

Cash flows from investing activitiesDeferred exploration costs (486,070) (497,123) (445,277) (704,984) (604,815)Purchase of equipment (914) (41,780) (10,209) (33,177) (3,309)Proceeds on disposal of investments - - - - -Cash flows from investing activities (486,984) (538,903) (455,486) (738,161) (608,124)

Cash flows from financing activitiesProceeds from issuance of capital stock, net of issue costs - - - 2,890,597 -Proceeds from exercise of compensation warrants - - - - -Net capital contribution from (reimbursement to) parent - - - - -Cash flows from financing activities - - - 2,890,597 -

Net Change in Cash (858,188) (845,802) (667,217) 1,962,310 (1,199,477)Net Cash - Beginning Balance 7,422,870 6,564,682 5,718,880 5,051,663 7,013,973Net Cash - Ending Balance 6,564,682 5,718,880 5,051,663 7,013,973 5,814,496



Annual Cash Flow StatementAll Figures in US$FY Ending December 31, FY07 FY08 FY09

Cash flow from operating activitiesNet Income (2,010,265) (3,121,973) (1,784,831)Depreciation and amortization 36,619 45,501 28,353Gain on disposal of investments / assets - - (631)Investor relation fees settled by warrants - - -Write-down of mining claims - 1,023,677 -Stock based compensation 1,507,714 1,031,578 548,443 Change in receivables and prepaids (47,076) 26,554 (24,742) Change in accounts payable 197,614 (164,365) 152,186 Cash flow from operating activities (315,394) (1,159,028) (1,079,960)

Cash flows from investing activitiesDeferred exploration costs (2,212,015) (4,265,374) (2,133,454)Purchase of equipment (77,118) (23,135) (86,080) Proceeds on disposal of investments 103,611 - -Cash flows from investing activities (2,185,522) (4,288,509) (2,219,534)

Cash flows from financing activitiesProceeds from issuance of capital stock, net of issue costs 14,891,170 - 2,890,597Proceeds from exercise of compensation warrants 419,101 - -Net capital contribution from (reimbursement to) parent 8,366 - -Cash flows from financing activities 15,318,637 - 2,890,597

Net Change in Cash 12,817,721 (5,447,537) (408,897) Net Cash - Beginning Balance 52,686 12,870,407 7,422,870Net Cash - Ending Balance 12,870,407 7,422,870 7,013,973


South American Silver Corp. (TSX: SAC)InItIal RepoRtvaluatIon

South Am

erican Silver Corp.

Acid H

eap Leach Process (tonne/day)

35,000

1 Troy ounce = Gram

s:32.15

Total2013E

2014E2015E

2016E2017E

2018E2019E

2020E2021E

2022E2023E

2024E2025E

2026E2027E

2028E2029E

2030E2031E

2032E2033E

Material extracted [Tonnes]

192,683,823

6,846,223

10,033,913

13,342,068

14,774,464

12,578,624

9,583,013

9,741,665

9,578,896

8,565,664

7,588,885

8,562,086

7,712,625

10,651,329

13,564,448

13,046,890

9,133,655

8,277,763

9,087,302

10,014,310

9,187,110

Pre-P

roduction [Tonnes]494,543

494,543

1.75

1.75

1.75

1.75

1.75

1.75

1.75

1.75

1.75

1.75

1.75

1.75

1.75

1.75

1.75

1.75

1.75

1.75

1.75

1.75

Leach Tonnes

229,250,000

8,750,000

12,250,000

12,250,000

12,250,000

12,250,000

12,250,000

12,250,000

12,250,000

12,250,000

12,250,000

12,250,000

12,250,000

12,250,000

12,250,000

12,250,000

12,250,000

12,250,000

12,250,000

12,250,000

7,000,000

Grade (g/t)

30.5

48.93

43.58

35.18

33.40

37.90

45.38

32.97

35.02

38.88

34.89

32.98

30.05

26.17

28.27

13.69

14.23

15.00

17.06

20.84

22.53

In [g/t]6.4

4.57

4.89

6.18

7.39

7.34

13.63

6.40

8.26

13.34

9.22

3.36

5.71

8.43

4.71

3.30

3.37

3.44

3.54

3.58

2.70

Waste

(36,566,177)

(1,903,777)

(2,216,087)

1,092,068

2,524,464

328,624

(2,666,987)

(2,508,335)

(2,671,104)

(3,684,336)

(4,661,115)

(3,687,914)

(4,537,375)

(1,598,671)

1,314,448

796,890

(3,116,345)

(3,972,237)

(3,162,698)

(2,235,690)

2,187,110

Contained S

ilver [kg]6,987,890

428,138

533,855

430,955

409,150

464,275

555,905

403,883

428,995

476,280

427,403

404,005

368,113

320,583

346,308

167,703

174,318

183,750

208,985

255,290

157,710

C

ontained Indium [kg]

1,462,090

39,988

59,903

75,705

90,528

89,915

166,968

78,400

101,185

163,415

112,945

41,160

69,948

103,268

57,698

40,425

41,283

42,140

43,365

43,855

18,900

Silver R

ecovery [%]

80.0%80.0%

80.0%80.0%

80.0%80.0%

80.0%80.0%

80.0%80.0%

80.0%80.0%

80.0%80.0%

80.0%80.0%

80.0%80.0%

80.0%80.0%

80.0%Indium

Recover [%

]70.0%

70.0%70.0%

70.0%70.0%

70.0%70.0%

70.0%70.0%

70.0%70.0%

70.0%70.0%

70.0%70.0%

70.0%70.0%

70.0%70.0%

70.0%70.0%

Silver [oz]

179,734,121

11,012,039

13,731,178

11,084,507

10,523,665

11,941,524

14,298,321

10,388,181

11,034,095

12,250,303

10,993,134

10,391,332

9,468,148

8,245,638

8,907,306

4,313,442

4,483,586

4,726,197

5,375,261

6,566,263

4,056,427

Indium [kg]

1,023,463

27,991

41,932

52,994

63,369

62,941

116,877

54,880

70,830

114,391

79,062

28,812

48,963

72,287

40,388

28,298

28,898

29,498

30,356

30,699

13,230

Payable S

ilver [tr oz]170,747,415

10,461,437

13,044,619

10,530,282

9,997,482

11,344,448

13,583,405

9,868,772

10,482,390

11,637,787

10,443,478

9,871,765

8,994,741

7,833,356

8,461,941

4,097,770

4,259,406

4,489,887

5,106,498

6,237,950

3,853,606

P

ayable Indium [kg]

972,290

26,592

39,835

50,344

60,201

59,793

111,033

52,136

67,288

108,671

75,108

27,371

46,515

68,673

38,369

26,883

27,453

28,023

28,838

29,164

12,569

Silver P

rice [$/t oz]15.0

15.0

15.0

15.0

15.0

15.0

15.0

15.0

15.0

15.0

15.0

15.0

15.0

15.0

15.0

15.0

15.0

15.0

15.0

15.0

15.0

Indium

Price [$/kg]

600.0

600.0

600.0

600.0

600.0

600.0

600.0

600.0

600.0

600.0

600.0

600.0

600.0

600.0

600.0

600.0

600.0

600.0

600.0

600.0

600.0

Cash flow

($ x 000)

Silver revenue

2,561,211

156,922

195,669

157,954

149,962

170,167

203,751

148,032

157,236

174,567

156,652

148,076

134,921

117,500

126,929

61,467

63,891

67,348

76,597

93,569

57,804

Indium revenue

583,374

15,955

23,901

30,206

36,120

35,876

66,620

31,282

40,373

65,203

45,065

16,423

27,909

41,204

23,021

16,130

16,472

16,814

17,303

17,498

7,541

By-P

roduct Credit

339,290

12,950

18,130

18,130

18,130

18,130

18,130

18,130

18,130

18,130

18,130

18,130

18,130

18,130

18,130

18,130

18,130

18,130

18,130

18,130

10,360

Total revenue [$ x 000]3,483,875

185,827

237,700

206,291

204,213

224,173

288,501

197,443

215,739

257,899

219,847

182,629

180,960

176,834

168,080

95,726

98,493

102,292

112,030

129,197

75,705

Mining costs

384,404

13,658

20,018

26,617

29,475

25,094

19,118

19,435

19,110

17,088

15,140

17,081

15,387

21,249

27,061

26,029

18,222

16,514

18,129

19,979

18,328

Plant costs

596,050

22,750

31,850

31,850

31,850

31,850

31,850

31,850

31,850

31,850

31,850

31,850

31,850

31,850

31,850

31,850

31,850

31,850

31,850

31,850

18,200

General and adm

inistrative229,250

8,750

12,250

12,250

12,250

12,250

12,250

12,250

12,250

12,250

12,250

12,250

12,250

12,250

12,250

12,250

12,250

12,250

12,250

12,250

7,000

S

ustaining capital for plant52,728

2,013

2,818

2,818

2,818

2,818

2,818

2,818

2,818

2,818

2,818

2,818

2,818

2,818

2,818

2,818

2,818

2,818

2,818

2,818

1,610

Final R

eclamation

2,639

139

139

139

139

139

139

139

139

139

139

139

139

139

139

139

139

139

139

139

139

Total Cash O

perating Cost [$ x 000]

1,265,071

47,310

67,074

73,674

76,531

72,151

66,174

66,491

66,166

64,145

62,196

64,138

62,443

68,306

74,117

73,085

65,278

63,571

65,186

67,035

45,277

Depreciation

121,662

5,192

6,241

6,241

6,241

6,241

6,241

7,066

6,517

6,517

6,517

6,517

6,517

6,517

6,517

6,517

6,517

6,517

6,517

6,517

6,517

EBIT [$ x 000]

2,097,143

133,325

164,385

126,376

121,440

145,781

216,086

123,886

143,056

187,238

151,134

111,975

112,000

102,012

87,446

16,125

26,698

32,205

40,328

55,646

23,911

Taxes627,456

38,817

49,274

37,879

36,401

43,699

64,783

37,135

42,884

56,135

45,307

33,561

33,572

30,579

26,207

4,824

7,996

9,647

12,082

16,674

7,161

EB

IT*(1-T) [$ x 000]1,469,687

94,508

115,111

88,496

85,040

102,083

151,303

86,752

100,172

131,103

105,827

78,414

78,429

71,433

61,239

11,300

18,702

22,558

28,246

38,972

16,750

O

perating Cash Flow

s [$ x 000]1,591,348

99,700

121,352

94,737

91,281

108,324

157,544

93,817

106,689

137,620

112,344

84,930

84,945

77,950

67,756

17,817

25,219

29,074

34,762

45,488

23,267

Capital cost [$ x 000]

25%A

ssumed additional capex for higher output than technical report

Initial Cap. P

lant62,500

25,000

12,500

P

re-Production

1,236

1,236

Initial Cap. M

ine16,475

6,590

3,295

Initial C

ap. Infrastructure25,000

10,000

5,000

C

ontingencies, Working C

apital18,955

4,222

6,451

2,708

943

409

Initial C

apital [$ x 000]124,167

47,049

27,246

2,708

943

409

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Sustaining capital - M

ine [$ x 000]45,325

15,108

15,108

15,108

R

oyalty / NS

R [$ x 000]

875

875

Total capital costs [$ x 000]170,366

47,049

28,121

2,708

943

409

-

15,108

-

-

-

-

15,108

-

-

-

-

15,108

-

-

-

-

Return of W

orking Capital [$ x 000]

-

Salvage [$ x 000]

-

Net C

ash Flow, pre-tax [$ x 000]

2,048,438

(47,049)

110,396

167,918

131,674

127,272

152,022

207,218

130,952

149,572

193,755

157,651

103,383

118,517

108,528

93,963

22,641

18,107

38,722

46,845

62,162

30,428

Net C

ash Flow, post-tax [$ x 000]

1,420,982

(47,049)

71,579

118,644

93,794

90,872

108,324

142,436

93,817

106,689

137,620

112,344

69,822

84,945

77,950

67,756

17,817

10,111

29,074

34,762

45,488

23,267

Source Docum

ent for the data inputed in this tab (unless stated otherwise) is the Technical report dated M

arch 19th 2009

Valuation - Case B

- Assum

es the throughput of 30,000 tonnes per day and measures the im

pact on NPV

Tax rate30.0%

Discount rate

15.0%Silver Price

15.0A

fter-tax Cash Flow

s ("000 $)N

PV

as on 1 Jan 2011318,795

N

PV

- Current

297,278

Net debt as on 31st M

arch 2010(7,014)

E

xpected cash proceeds from w

arrants/options8,945

Equity valu e

313,237

Diluted S

AC

shares (in 000)81,923

NP

V per share in $

3.82E

xchange rate as on 24 June 20101.04

N

PV per share in C$

3.96

P/N

PV

0.8xPrice

3.20

Market P

rice (C$) as on June 23, 2010

0.62

Upside / (D

ownside)

415.5%


South American Silver Corp. (TSX: SAC)InItIal RepoRtDIScloSuReS

Analyst CertificationThe analysts contributing to this report do not hold any shares of SAC. Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the analysts’ personal views as to the subject securities and issuers. RedChip Companies Inc. certifies that no part of the analysts’ compensation was, is, or will be, directly or indirectly, related to the specific recommendation or views expressed by the analyst authoring this report.

RedChip Visibility Research UniverseRedChip Visibility, a division of RedChip Companies Inc., covers small and micro cap companies with market caps ranging from $5.5M to $1.2B. Each company is typically covered for at least 12 months. New companies may be added or removed at any time.

RedChip Rating System

STRONG BUYThe current price reflects a substantial discount from the market and from its peers, and the company does not possess significant financial risk within its risk category. Future growth potential is undervalued relative to the company’s stock price. The analyst believes the stock at current levels represents a compelling opportunity for capital gains over the time period to its target price.

BUYThe current price reflects a discount from the market and from its peers, and the company does not possess significant financial risk within its risk category. The analyst believes the stock at current levels will provide an opportunity for capital gains over the period of its target price. Several factors can indicate an undervaluation of the company’s shares. SPECULATIVE BUYThe current price appears to offer potential gains though risk is considerably higher given its risk category. There may be insufficient historical data or clear-cut prospects to warrant a “Buy,” but the analyst believes that the long run prospects of the Company are positive. The analyst believes its risk reward ratio advocates purchase of the stock. In the short term, the stock may be subject to high volatility and continue to trade at a discount to its market.

HOLDThe analyst is unable to assign a buy rating due to a number of specified factors noted in the report. These include the stock being fairly valued rela-tive to its peers and the market, or the company may have risks that make it potentially unsuitable for investment within its risk category. Similarly there are no currently known compelling factors that would warrant selling. The analyst will remain neutral pending developments.

SELLThe analyst believes that the Company is overvalued based on its current status. The future of the Company’s operations may be questionable and there is an extreme level of investment risk relative to reward given its risk category. An investment in the company may produce below market returns and/or deficits.

About RedChipRedChip Companies is an international, small-cap research and financial public relations firm headquartered in Orlando, Florida; with affiliate offices in Qingdao, China; Paris and San Diego. RedChip delivers concrete, measurable results for its clients through its extensive national and international network of small-cap institutional and retail investors. RedChip has developed the most comprehensive platform of products and services for small-cap companies, including: RedChip Visibility Research™, Traditional Investor Relations, Digital Investor Relations, Institutional and Retail Conferences, RedChip Small-Cap T V( TM), Shareholder Intelligence, Social Media and Blogging Services, Webcasts and RedChip Radio( TM). RedChip is not a FINRA member or registered broker/dealer.

None of the profiles issued by RedChip Companies, Inc., constitutes a recommendation for any investor to purchase or sell any particular security or that any security is suitable for any investor. Any investor should determine whether a particular security is suitable based on the investor ’s objec-tives, other securities holdings, financial situation needs, and tax status. South American Silver Corp. (“SAC”) paid RedChip Visibility, a division of RedChip Companies, Inc., thirty thousand dollars for eleven months of RedChip Visibility Program services, which includes the preparation of the equity research reports. The equity research report(s) are prepared for informational purposes only and were paid for by the company portrayed in the report. Information contained in the equity research report(s) is obtained from sources believed to be reliable, but its accuracy and completeness are not guaranteed. These reports are not a recommendation of a solicitation to purchase or sell any security, nor do they constitute investment advice. RedChip Companies, Inc., is currently engaged by this company to provide investor awareness services. Investor awareness services and programs are designed to help small-cap companies communicate their investment characteristics. South American Silver Corp. agreed to pay RedChip Companies, Inc., a fee of thirty thousand dollars in cash for eleven months of these investor relations services and, subject to approval by the Toronto Stock Ex-change, warrants to purchase up to two hundred thousand shares of common stock with an exercise price of $0.80 per share, exercisable for a period of 24 months. RedChip Companies, Inc., employees and affiliates may have positions and affect transactions in the securities or options of the issuers mentioned herein.

Additional information about the subject security, analyst, or RedChip Companies Inc. is available upon request. To learn more about RedChip’s prod-ucts and services, visit http://www.redchip.com/visibility/productsandservices.asp, call 1-800-RedChip (733-2447), or email at [email protected]

Company Contact Info:880-580 Hornby StreetVancouver, BC V6C 3B6Phone: (604) 684-0693

Rating Number of Covered CompaniesPercentage of

Universe

Strong Buy 5 22.7%

Buy 14 63.6%

Speculative Buy 3 13.6%

Hold 0 0.0%

Sell 0 0.0%

RedChip Visibility Coverage Universe

Sac Initial Report

Documents

Transcript of Sac Initial Report