first majestic silver

Gammon Lake Resources (TSX:GAM/Amex:GRS) Follow-Up No 15 / August 15, 2006

August 15, 2006

Home page of GAM

Chart 4 years

GAMMON LAKE AND MEXGOLD HAVE FORMED A NEW WORLD-CLASS MID-TIER PRODUCER IN MEXICO - 0.47 Gammon Lake Common Shares for each Mexgold Common Share

Business Summary

Gammon Lake Resources is a rapidly growing mineral resource company - now moving toward significant gold and silver production from the Company's 100% controlled Ocampo Gold-Silver Project in Chihuahua, Mexico

Gammon Lake acquired all of the issued and outstanding Common Shares and Stock Options of Mexgold by way of a plan of arrangement under the Business Corporations Act (Ontario), in exchange for Common Shares and Stock Options of Gammon Lake on the basis of 0.47 Gammon Lake Common Shares for each Mexgold Common Share.

Highlights of the new Gammon Lake include:

  • Intermediate gold-silver company with a fully-diluted market capitalization of over C$1.8 billion (based on the July 27, 2006 closing price of Gammon Lake).
  • Upon reaching full production, Gammon Lake is expected to produce more than 400,000 gold equivalent ounces annually (free of hedging).
  • Expected low cash costs of below US$200 per gold equivalent ounce.
  • A large Measured & Indicated Resource of more than 6.0-million gold equivalent ounces (3.5-million ounces of gold and 165-million ounces of silver) and additional Inferred Resources of more than 9.0-million gold equivalent ounces (4.9-million ounces of gold and 249-million ounces of silver). Included within the Measured & Indicated Resources are Proven & Probable Reserves of more than 5.0-million gold equivalent ounces (2.8-million ounces of gold and 137-million ounces of silver). (Slightly different gold-silver ratios were used by each respective Company)
  • Low geopolitical risk
  • Attractive exploration land package
  • With a cash position of approximately C$36 million, the new company will be in a strong position to accelerate the exploration and development of the combined portfolio of properties.
  • Strong, committed and entrepreneurial management with proven trackrecord.

(1) Gold equivalent values are based on 60 grams of silver equals 1 gram of gold, calculated on a gold price of US$450/oz and a silver price of US$7.50/oz. Gold equivalent production based on 235,000 ounces of gold and 10,500,000 ounces of silver.

Ocampo Gold-Silver Project located in Chihuahua

Gammon Lake Resources has a 100% interest in Ocampo Gold-Silver Project located in Chihuahua, Mexico. The Company has been actively exploring the Ocampo Mining District since 1999, greatly advancing the Project toward gold-silver production which commenced within the first quarter of 2006.

A positive feasibility study was completed in November 2004 for phase one development of the Ocampo Project, demonstrating extremely robust economic potential. Annual production is expected to average 270,000 ounces gold-equivalent (170,000 oz. gold and 6-million oz. silver) over the first seven years of mining, at a cash cost of US $151.74 per gold-equivalent ounce. Production from the first year of operation is anticipated to exceed 300,000 gold-equivalent ounces. At a US $400 gold price and US $6.50 silver price, the Internal Rate of Return (IRR) for the Project is 65%.

A highly experienced mine development and operations team has been assembled to move the Ocampo Project through to production. In February 2005, John C. Thornton, Chief Operating Officer; John Roberts, Chief Mining Engineer; and Richard Jeffress, Manager of Projects, joined Gammon Lake. Together, they bring more than 100 years of industry experience to the Project.

Kappes, Cassiday and Associates (KCA) of Reno, Nevada, a pioneering firm in precious metals heap leaching, has been appointed from mill and heap leach construction and commissioning. With such a strong and well experienced team in place, management is confident that construction and development of the mine site will remain on schedule and on budget.

The Ocampo Project is located at approximately 28°12.5' latitude and 108°25' longitude. It is approximately 235-kilometres southwest of the state capital Chihuahua, within the Ocampo Municipio, in the State of Chihuahua, Mexico. The project area ranges from 1,600-metres to 2,200-metres in elevation.

Additional Growth Ahead for Gammon through the Acquisition of Mexgold Resources Inc.

El Cubo Gold-Silver Mine

The El Cubo Mine is a producing mine located in the famous Guanajuato Mining District in Guanajuato, Mexico. One of Mexico's largest gold and silver producers, historic production from the district is estimated at 4-million ounces of gold and 1-billion ounces of silver.

Mexgold acquired El Cubo in February 2004, and further increased its land holding in the area when the Company entered into a lease agreement with Penoles in October 2004, for the adjacent Las Torres Mine. The Las Torres Mine comprises a group of four working mines consisting of the Cedros, Peregrina, Apolo and Sirena mines. Each mine has been maintained on a care and maintenance basis, and no special measures are required to resume operations. By unifying El Cubo and Las Torres into a single mining operation encompassing more than 14,000-hectares, Mexgold has effectively consolidated the majority of the Guanajuato gold-silver district, one of the most productive silver districts in the world.

Mexgold's near term objectives at El Cubo are to 1) increase annualized gold-equivalent production to in excess of 100,000 ounces, 2) reduce average cash costs to below US $200 per gold-equivalent ounce, and 3) target an expansion of project resources to more than 2-million ounces of gold-equivalent. To achieve these objectives, Mexgold has launched a 60,000-metre exploration and development drilling program, is constructing 8,500-metres of underground development in tunnels and ramps, and is implementing improvements to mine design and mining methods. Guadalupe Gold-Silver Project

The Guadalupe Project is an advanced stage gold and silver exploration project located in Chihuahua, Mexico. According to an independent report by Pincock, Allen & Holt (a link to this report is below), historic production at the Guadalupe Project has been estimated at 2-million ounces of gold and 28-million ounces of silver, grading 37 grams per tonne gold and 870 grams per tonne silver. Per the independent report, the inferred mineral resource at this project currently stands at more than 1.7-million gold-equivalent ounces (1-million ounces of gold and 46-million ounces of silver) from immediately accessible zones. The estimate does not address significant additional mineralized structures known to be present on the property, or the potential for large strike extensions of known high-grade zones.

Mexgold has initiated an exploration drill program, initially planned for 10,000-metres, but expanded to 30,000-metres in response to significant high-grade results from the first round of drilling. The Company is now completing grid-drilling in the locations surrounding drill holes yielding positive results, to ascertain the width and strike extent of the highly mineralized portions of the property. Mexgold is targeting the discovery of up to 3.5-million ounces of gold-equivalent at Guadalupe through the application of modern exploration techniques to this project.

Recent News: Gammon Lake begins commissioning of Ocampo mill

Gammon Lake Resources Inc. announced that commissioning of the Ocampo mill has commenced processing ore from the Company's underground mine. Material is currently being fed through the crushers and ball mills for testing purposes. Mill commissioning is proceeding on schedule. Gammon Lake will be ramping up mill production and expects to realize gold and silver production from the underground mine during the month of August.

Results from Gammon Lake's Newly Expanded Mining Operations

Gammon Lake recently acquired the El Cubo Mine, located in Guanajuato, Mexico as a result a business combination with Mexgold Resources Inc. During the month of July, 4,458 ounces of gold and 142,767 ounces of silver were produced from the El Cubo Mine. This represents a 14.5% increase over mine production in the month of June and is a result of development of new areas within the Mine that have been identified though exploration drilling, such as La Loca, and ultimately increase production.

Gold and silver production from the Ocampo Open Pit Mine during the month of July amounted to 5,902 ounces of gold and 120,565 ounces of silver. July production from Ocampo approximates to that of last month due to unusual torrential rain during the month. Monsoon rainfall accumulation at Ocampo during the month of July was equal to the average rainfall accumulation for the months of July and August, combined. "Our team on site is to be commended for their tremendous effort during the past month," commented Fred George, Chairman and President. "Given the exceptional weather conditions the Company was faced with in July we are very pleased with the progress that has continued to be made on site, the completion of the mill and our gold and silver production for the month. We are confident of attaining higher production levels in August."

Fundamental Considerations

The primary focus of the Company over the past year has been on the construction of the Ocampo open pit mine, underground mine and mine facilities. To date, construction of the crushing facilities and heap leach pad continues. The high-grade crushing line commenced operations early in January 2006 and is now feeding at the feasibility rate of approximately 6,000 tonnes of ore per day. The low grade secondary crushing line has been completed as of February 28, 2006, and will enable Gammon Lake to achieve a stacking rate of 13,000 tonnes of ore per day to the heap leach pad. The Mill facilities for processing 1,500 tonnes of ore per day from the underground mine are currently under construction, and expected to be fully constructed in the second quarter of 2006.

Gammon Lake has set the stage to become a significant mid-tier gold and silver producer; building what is expected to be the single largest operating gold-silver mine in Mexico. The Company in fact announced in February that its poured its first dore bars at the Company's 100% controlled Ocampo Mine, located in Chihuahua, Mexico.

Technical Considerations

The tremendous exploration potential of Gammon Lake, increased through the combination with Mexgold, is not fully reflected in the share price.

 

Peter Zihlmann


www.pzim.com

[email protected]

 

August 15, 2006

Disclosure: The author has not been paid to write this article, nor has he received any other inducement to do so. The author is a shareholder in the company and will benefit from any increase in the company's share price. Disclaimer: The author's objective in writing this article is to invoke an interest on the part of potential investors in this stock to the point where they are encouraged to conduct their own further diligent research. Neither the information, nor the opinions expressed should be construed as a solicitation to buy or sell this stock. Investors are recommended to obtain the advice of a qualified investment advisor before entering into any transactions in the stock.


Palladium, platinum and silver are the most common substitutes for gold that closely retain its desired properties.
Top 5 Best Gold IRA Companies

Gold Eagle twitter                Like Gold Eagle on Facebook