Zephyr Minerals Ltd.  (TSX-V:ZFR)  (OTC: ZPHYF), is pleased to announce positive results of a Preliminary Economic Assessment on its 100%-owned Dawson Gold Project in Colorado, USA. The PEA provides a base case assessment of developing the Dawson Segment mineral resource and does not include the Windy Gulch Segment or the Windy Point Segment.

PEA HIGHLIGHTS

Base case parameters assume a gold price of US$1,250/oz and an exchange rate (US$ to C$) of 0.76.

• Pre-Tax IRR and NPV_5% of 66% and $46.7 million (US$35.5 million) and a 2.4 year payback of initial capital;
• After-Tax IRR and NPV_5% of 46% and $29.1 million (US$22.1 million) and a payback of 2.7 years;
• Low initial capital of $43.6 million (US$33.2 million) including contingency;
• Life of mine (“LOM”) cash cost of US$563/oz⁽¹⁾;
• LOM all in sustaining cost, including cash cost, of US$692/oz⁽²⁾;
• LOM diluted head grade 9.2 grams per tonne (“g/t”) (0.27 ounces per short ton (“oz/st”));
• LOM gold combined gravity and float recovery of 92%.

Loren Komperdo, President and CEO of Zephyr stated “Management is pleased with the results of this initial independent economic assessment of our 100% owned Dawson gold project. This PEA supports that the gold resources at the Dawson Segment have potential for an economic near-term, low capital and high grade underground gold mine. We are confident that we can further enhance the already robust economics by identifying additional resources at the Dawson segment which is open down-plunge and up-plunge; and also by incorporating potential resources from the Windy Gulch segment which is open to the east and at depth, and the Windy Point segment which is open along strike and at depth.”

The PEA was prepared by independent engineering firm, Golder Associates Ltd., with input from a number of other specialized and experienced consulting firms. A technical report prepared in compliance with National Instrument 43-101 of the Canadian Securities Administrators will be filed on SEDAR and the company’s website within 45 days.

This PEA is preliminary in nature and includes inferred mineral resources that are too speculative geologically to have economic considerations applied to them that would enable them to be categorized as mineral reserves. There has been insufficient drilling to define the inferred resources as indicted or measured mineral resource; however, it is reasonable to expect that the inferred mineral resources could be upgraded to indicated and possibly measured resources with continued drilling. There is no guarantee that any part of the mineral resources discussed herein will be converted into a mineral reserve in the future.

The Dawson project is characterized by granite hosted high grade gold mineralization in discrete bodies in a 3km long, east- west trending shear zone. The gold mineralized bodies typically dip steeply to the north and range between 1m to 15m in width, averaging approx. 3.5m. The gold occurs as free gold in hairline cracks and along mineral grain boundaries.

The PEA envisages an owner-operated, five-year underground mine project encompassing the Dawson Segment of the Dawson project. The Dawson Segment provides 450,000 tons (409,000 tonnes) of mill feed at an average diluted grade of 0.27 oz/tn (9.2 g/t) gold with combined gravity and float recovery of 92%.

Key Aspects and Assumptions of the PEA

Metal Price Sensitivity

Discount Rate Sensitivity

Opportunities to Enhance Value

In addition to the favorable economics outlined in the PEA, there are numerous opportunities to further enhance project value though additional resource expansion and optimization work at Dawson.

• Additional metallurgical testing to further optimize gold recoveries;
• The Dawson Segment resource is open to expansion down plunge to the south-west as well as up plunge to the north-west;
• The Windy Gulch Segment resource is open to expansion at depth and to the south-west;
• Exploration program at Windy Point – historic drilling at Windy Point; has demonstrated high grade gold;
• Exploration potential exists at Sentinel and Copper King;
• Assess lower gold recoveries in area of poor diamond drill core recovery;
• Marketing studies to establish economically optimum smelting options for gold concentrates;
• Optimize the mine design and production schedule.

Capital and Operating Cost Summary

The preproduction capital cost estimate includes mine, mill and tailings capital expenditures, environmental and permitting costs, owners and indirect costs and contingency.

Sustaining capital cost includes mine equipment replacement, infrastructure upgrades including stope development and tailings maintenance.

Operating Costs Summary

Dawson Segment Mineral Resource Estimate Effective July 19, 2013

Windy Gulch Resource Estimate

Following a successful 2016 drill campaign at Windy Gulch, Golder has prepared an updated resource estimate. The resource estimate is based on assay data from drill and surface channel sample programs completed by Zephyr and its predecessors between 1983 and 2016. The deposit consists of pit-constrained resource and an underground resource. Combined, the Windy Gulch Segment consists of 78,000 tons of 0.12 oz/tn of Indicated Resource and 20,000 tons of 0.16 oz/tn at the Inferred Resource level. Windy Gulch is open to the east and at depth.

Windy Gulch Pit-constrained and Underground Mineral Resource Estimate Effective January 17, 2017

The Mineral Resource Estimate for the Windy Gulch Segment has been prepared by Brian Thomas (P.Geo.), an Independent QP as defined by NI 43-101 and is compliant with CIM standards and guidelines for reporting Mineral Resources. Mineral Resources are not Mineral Reserves and do not have demonstrated economic viability. There is no certainty that all or any part of this Mineral Resource will be converted into Mineral Reserve. Inferred Mineral Resources are too geologically speculative to have economic considerations applied to them to be categorized as Mineral Reserves.

The mineral resource estimate represents an pit-constrained mining scenario and is derived from a Datamine constructed block model (block size = 10 ft long by 5 ft wide by 5 ft high) consisting of five mineral domains (Zones 1 to 5). Pit-constrained resources are reported within an economic pit shell outline at a 0.035 oz/tn Au cut-off, and underground resources are reported outside and below the pit shell at a 0.093 oz/t Au cut-off. Zones 1 and 2 were “unfolded” to reduce the impact of minor changes in strike and dip orientations and had top cuts of 1.167 oz/tn (40 g/t) applied to raw assay values in order to restrict the influence of outlier values. Raw samples were composited to an average length of 3 ft. The five domains were estimated using the Inverse Distance Cubed (ID³) interpolation method. Density values were estimated from gas pycnometer measurements taken from half core samples and, where absent, were assigned average default values of 2.75 t/m³ (Zone 1) and 2.73 t/m³ (Zones 2 to 5). The resources reported are based on a “blocks above cut-off” basis and were then examined visually by Golder to confirm reasonable continuity.

Qualified Persons and Quality Assurance/Quality Control

The “Qualified Person” (QP), as such term is defined in NI 43-101, who has classified the Dawson Mineral Resource Estimate as being current at the effective date of the PEA  is Mr. Michael Cullen, P.Geo., Chief Geologist at Mercator Geological Services Limited. Mr. Cullen is an independent Qualified Person in accordance with NI 43-101 and has reviewed and approved the information regarding the Resource estimate in this News Release.

Mark Graves (P.Geo.), who is a geologist independent of Zephyr, has reviewed and approved the geological technical information in this news release, including sampling, analytical and test data underlying such information and has visited, reviewed and verified the QA/QC procedures used by Zephyr at the Dawson Project and found them to be consistent with industry standards.

The QP, who prepared the Windy Gulch Mineral Resource Estimate presented in this news release is Mr. Brian Thomas (P.Geo.), who is a geologist independent of Zephyr and an employee of Golder Associates Ltd., has reviewed and approved the geological technical information in this news release, including sampling, analytical and test data underlying such information and has visited, reviewed and verified the QA/QC procedures used by Zephyr at the Windy Gulch Project and found them to be consistent with industry standards. In Golder’s opinion, the Windy Gulch Mineral Resource Estimate disclosed herein is compliant with CIM Standards and Guidelines.

The QP who prepared metallurgical content is Mr. H.M. Matt Bolu, Principal Metallurgical Engineer of BOMENCO Inc., and the Company’s metallurgical consultant, who is a P.Eng. registered with the Association of Professional Engineers and Geoscientists of BC (APEGBC).

Mr. Doug Roy, P.Eng., with MineTech International Limited, is a Qualified Person as defined under National Instrument 43-101 and has reviewed the scientific and technical information in this news release with respect to the mine plan.

The Preliminary Economic Assessment has been compiled by Danny Tolmer (P.Eng.), an employee of Golder Associates Ltd., and an independent QP as defined by NI 43-101 and is compliant with CIM standards.

Golder is currently preparing a NI 43-101 PEA technical report, which will be filed on SEDAR (www.sedar.com) not later than 45 days after the date of this news release.

ABOUT ZEPHYR MINERALS

Zephyr Minerals Ltd. is a gold exploration and development company focused on advancing its flagship Dawson Gold Project in Colorado, USA. After completing a positive PEA, Zephyr is continuing to advance the project though permitting, additional exploration as well as further engineering work with a plan to develop a high grade, low cost underground gold mine.