Capital Gold posts record production at El Chanate (October 27, 2008)

Capital Gold (CGC-T, CGLD-o) has managed to keep a tight lid on costs at its El Chanate gold mine in Mexico during the operation’s first fiscal year.

Cash costs came in at US$224 per oz., excluding royalties, well below the industry average of US$400 per oz., management says.

El Chanate produced 4,350 oz. gold in September, bringing the combined production for August and September to a record twomonth total of 9,100 oz. That’s 1,000 oz. more than any previous twomonth period.

The annualized rate of production at the mine has climbed to 55,000 oz. gold per year today from 40,000 oz. in its first year.

Despite these achievements, Capital Gold, like so many other publicly traded companies, is being hammered in the equity markets.

The junior producer is trading at 38 a share and has a 52-week trading range of 34-89 a share.

“Our current share price in no way reflects the company’s current strengths and growth potential,” John Brownlie, Capital Gold’s chief operating officer, stated in a press release.

Brownlie noted that the company has been “caught up in events not of our making and as a result, our stockholders have been unfairly penalized.”

El Chanate is in the northwestern corner of Mexico’s Sonora state, about 170 km southwest of Tucson, Ariz., and about 280 km northeast of Hermosillo.

More drilling is under way to maximize proven and probable gold reserves and a revised National Instrument 43-101 estimate is anticipated early next year.

Currently, the deposit has proven and probable reserves of 39.5 million tonnes grading 0.66 gram gold per tonne for a total of 832,000 contained ounces gold. The deposit has an estimated mine life of 11 years.

According to an October 2007 technical report, the open-pit waste-to-ore stripping ratio is 0.6:1.

Gold mineralization occurs within fine-grained quartz predominantly in thin veinlets, which are spatially associated with the south-dipping El Chanate fault. “Dense swarms of these veinlets form the economic portion of the deposit,” the report states.

In addition, all upgrades are being funded by operating cash flow. The New York-headquartered company also has a US$5- million line of credit.

Now the company says it wants a listing on a major national exchange, such as the American Stock Exchange. To accomplish that, management is considering a share consolidation.

Given that the stock is at a 52- week low, however, management says it “reserves the right to delay enacting the (consolidation) if it deems the resulting share price will fall short of the US$2 required by the AMEX.”

Jeff Pritchard, the company’s executive vice-president, pointed out that the company had decided to continue with the voting process.

“It is important to note that, if the proxy is approved, it entitles management to initiate the reverse split,” he said in a prepared statement.

“At the same time, it also allows management to delay or curtail the process completely.”

Capital Gold owns 100% of the El Chanate gold property.