Palmarejo cuts high-grade gold at Guadalupe

Vancouver – Deep drilling by Palmarejo Silver and Gold (PJO-V, PJOFF-O) on its Guadalupe project in Chihuahua State, Mexico tapped into a zone of high-grade gold mineralization.

Hole TGDH091D intersected a 14.1-metre interval (from 380.9 metres downhole depth) grading 1.07 grams gold per tonne and 109 grams silver per tonne followed by a 6-metre section (from 398 metres depth) of 54.15 grams gold and 115 grams silver in a quartz vein breccia. Another hole, TGDH096D, cut 33.5 metres (from 300 metres depth) averaging 1.83 grams gold and 160 grams silver, including a 12-metre interval of 3.16 grams gold and 263 grams silver.

Palmarejo collared the holes to test a hypothesized deeper, gold-rich level of a known structure. Gold-silver mineralization on the project area (comprised of Guadalupe Norte, Guadalupe and Las Animas) consists of a series of northeast dipping quartz veins that have been traced for more than 1,500 metres along strike.

An inferred resource of 5.7 million tonnes at 0.83 gram gold and 106 grams silver was recently reviewed at Guadalupe, using a 0.8 gram gold equivalent cutoff grade applied above the 1,300-metre elevation and a 3 gram gold equivalent cutoff grade below that. Palmarejo states the resource study so far only factors in the upper, silver-rich portion of the epithermal system. Deeper drilling indicates a trend of gold enrichment with depth.

Guadalupe covers just a portion of the company’s 12,160-hectare Palmarejo-Trogan project.

Feasibility Study Advances

As part of the company’s ongoing feasibility on the main Palmarejo project, it recently commenced construction of a processing facility in conjunction with continued definition drilling. Open pit development and haul road construction is expected to commence in early-2007. All permits have been approved.

A preliminary operating plan foresees an initial 2 million tonne per year mining rate with an average grade of about 5 grams gold equivalent. Annual output is estimated at 115,000 ozs. of gold and 12 million ozs. of silver over a 10-to-12 year mine-life. Capital cost estimates come in at about US$85 million.

The Palmarejo deposit hosts a measured and indicated resource of 14.5 million tonnes grading 2.08 grams gold and 191 grams silver (971,000 contained ozs. of gold and 89 million contained ozs. of silver), using a 0.8 gram gold equivalent cutoff grade. A further 4 million inferred tonnes at 1.31 grams gold and 138 grams silver were also reviewed. The deposit is reported open along strike and to depth.

The property contains several other similarly mineralized zones that are also undergoing extensive exploration.

Palmarejo’s project lies near the western edge of the Sierra Madre Occidental volcanic belt, which hosts many major mineral deposits in Mexico. Gold and silver mineralization is primarily associated with structurally-controlled, low-sulphidation polymetallic-carbonate veins within the Lower Volcanic Sequence andesites. Locally, there is some overprinting of high-level, high-grade gold-silver veins. A regional north-northwest trending fault structure controls the veins, with west-northwest dilatant zones that form the high grade shoots (or “clavos”).

The property has undergone extensive historic underground silver and gold mining as far back as the early-1800s, most of which is relatively shallow (less than 100 metres).

A subsidiary of Aussie-listed Bolnisi Gold (BSG-A) owns about 73.8% of Palmarejo’s issued shares, which it acquired on vend-through of the Palmarejo-Trogan project in early-2005.

With its 90.5-million shares outstanding, Palmarejo posts an $800-million market capitalization based on its recent $8.85 share price. The stock has a 52-week trading range of $3.00-to-$10.45.