THE GLOBAL SEARCH FOR GOLD SPECIAL — El Callao deepens Lo Increible gold deposit in Venezuela

Drilling on its Lo Increible property in Venezuela, El Callao Mining (ECM-V) (in which Bema Gold [BGO-T] holds a 50.4% interest) has extended one of its gold deposits downdip.

Strong gold grades have been intersected at the Cruz deposit, below previously known mineralization. Initial drilling had bottomed out in mineralization at a depth of 230 ft. downdip. Assays from the first five new diamond drill holes on La Cruz returned significant widths of gold mineralization below this level.

At a depth of 299 ft., hole ER96-105 hit 62 ft. grading 0.129 oz. gold per ton, including 25 ft. of 0.239 oz. At 410 ft. down, hole ER96-106 hit 43 ft.

of 0.137 oz. gold, including 14 ft. of 0.204 oz. gold. Hole ER96-107 hit two zones: at 479 ft. down, it intersected 10 ft. grading 0.209 oz. gold; then, at 712 ft., it hit 26 ft. grading 0.13 oz. gold, including 7 ft. of 0.437 oz.

gold. At 561 ft. down, hole ER96-108 hit 7 ft. of 0.34 oz. gold. At 416 ft.

down, hole ER96-109 hit 20 ft. of 0.389 oz. gold.

The Cruz zone has a strike length of at least 1,410 ft., and is open to the east, west and downdip. Drilling of the deposit continues.

Elsewhere on the Lo Increible property, at the Victoria deposit, El Callao began shipping surface ore to the nearby (5 km distant) Revemin mill in May.

Production at Victoria is expected to grow to a rate of 11,000 ton per month, yielding 26,000 oz. gold per year. El Callao underestimated the amount of small-scale mining activity that has taken place on the high-grade veins, and so the ramp-up to estimated production volumes has been slowed.

El Callao expects to begin a new phase of drilling on the Victoria zone in the fourth quarter in an effort to expand the deposit further. In May, El Callao and a partner began a scoping study on the property. The study, which will wrap up shortly, will determine whether the construction of its own mill is feasible for El Callao. The Revemin mill is operated by its majority owner, Monarch Resources (MRE-T).

In the second quarter, Monarch operated the Revemin mill at a loss of US$242,000. The company reports that improvements in the efficiency of the mill and management’s ability to control operating costs have not been able to make up for a shortage of sustained feed to the mill; El Callao’s lower-than-forecast production volume, as noted above, contributed to this difficulty.

Monarch has stated that Revemin’s financial performance in the next two quarters will largely depend on El Callao’s ability to achieve its planned rate of production at Victoria.

Monarch’s Venezuelan gold mine, La Camorra, recorded an improved operating performance in the second quarter, scoring record quarterly gold production of 15,114 oz. The cash cost per ounce at Camorra was US$234 for the period, compared with US$281 for the same quarter in 1995.

An underground drill program to define the gold resource of the Betzy vein is in progress, and Monarch reports that the results thus far indicate that the vein’s high-grade structure may extend farther to the east than had been anticipated. Several deep drill holes are planned for the third quarter.

Assay results from four infill holes demonstrate that the Upper Level B zone mineralization does, in fact, extend through a previously identified gap area. One of the holes, drilled in the centre of the gap, returned 39 grams gold per tonne over 5.6 metres.

Two of three infill holes drilled in the area of the Lower Level reserves returned assay results of 36.2 grams gold over 1.73 metres and 29.9 grams gold over 3.36 metres, respectively.

In April, Venezuela adopted several free-market reforms, including the lifting of exchange controls and the elimination of a fixed exchange rate.

These changes, Monarch reports, have had a net favorable impact on the company’s operating results.