More gold at Palmarejo’s Guadalupe

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

Hole TGDH091D intersected a 14.1-metre interval (from 380.9 metres down-hole 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) 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 grading 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 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 higher gold grades with depth.

Guadalupe covers just a portion of the company’s 121.6-sq.-km Palmarejo-Trogan project.

As part of the company’s ongoing feasibility on the main Palmarejo project, it recently began construction of a processing facility in conjunction with continued definition drilling. Open-pit development and haul road construction is expected to start 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 oz. gold and 12 million oz. silver over a 10- to 12-year mine life. Capital costs are estimated 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 ounces gold and 89 million contained ounces 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 open along strike and at 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 has been relatively shallow (less than 100 metres).

A subsidiary of Aussie-listed Bolnisi Gold (BXLGF-O, 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 90.5 million shares outstanding, Palmarejo posts an $800-million market capitalization based on its recent $8.85 share price. The stock has traded in a 52-week range of $3.00-$10.45.