Metallurgical update: studies show higher than expected recoveries for the Posse Deposit, Mara Rosa Project

Amarillo Gold Corp. (TSX-V: AGC) (“Amarillo” or the “Company”) received the latest update from the ongoing metallurgical studies being conducted on the Posse Deposit which is part of Amarillo's flagship Mara Rosa project in Goias State, Brazil, four hours drive northwest of the nation's capital, Brasilia.

In a news release dated August 2010, Amarillo reported that encouraging metallurgical recoveries were obtained when the Mara Rosa telluride bearing ore was oxidized before cyanidization.  For the purpose of that study an expensive chemical oxidant was employed.  Amarillo subsequently commissioned Coffey Mining to undertake further studies to investigate the optimal metallurgical pathway for the deposit.  The study is being led by Rod Smith, a renowned telluride expert, with input from other members of their metallurgical team.  The laboratory work is being conducted at Ammtec, Perth, Australia.  Frank Baker, a metallurgist of over 30 years’ experience, is the project leader for Amarillo (see NR Oct 12, 2010).  

Two composites representing the predominant ore types in the deposit (Main and Hanging Wall) were compiled, with head grades from 1.24 to 1.59 g/t gold (around the grade of the indicated and inferred resource at 0.5 g/t cut off (see Table 2 below).  The material was ground to a P80 of 45 microns.  The ore was pre-oxidized by vigorous oxygen sparging and then treated by standard 24 hr cyanidation.  Six tests with pre-oxidation times varying from 6 hours to 72 hours were carried out on each of the composites. A pre-oxidation of 12 hours followed by a 24 hour cyanidation achieved a recovery of more than 93%.  A full table of the results is given below.  

Frank Baker comments: “The results are encouraging as they indicate the ore could be treated using conventional CIL tanks with the simple addition of a PMS oxygen unit, for less than $1 million in additional CAPEX.  Also, importantly, we see that cyanide consumptions (+/-0.3 kg/t) and lime consumptions ( +/-2.0 kg/t) were moderate.”  He continued, “Given the high gold recovery rates, this appears the best method for the Posse deposit.”
 

Table 1: Summary of test results using pre-oxidation and differing cyanide residence times.

Ore-type  P80 (μm) Pre-ox time (hrs) pH Grade (g/t) Au recovery (%) after CN
(kg/t)
 Lime
(kg/t)
 8 hrs 18 hrs  24 hrs 48 hrs
HW  45 0 10.0 1.59 53.3 63.5 66.7 78.0 0.21 0.42
HW  45 6 12.0 1.49 84.1 92.0 93.7 95.3 0.28 1.60
HW  45 12 12.0 1.42 90.6 92.5 93.4 94.4 0.21 1.78
HW  45 24 12.0 1.24 91.3 92.4 93.4 94.4 0.27 3.36
HW  45 72 12.0 1.29 91.4 93.4 94.4 95.3 0.26 3.16
HW  45 24 11.0 1.48 64.0 69.4 75.3 81.0 0.30 1.08
HW 53 24 12.0 1.57 75.8 85.1 87.5 93.6 0.20 1.64
HW 75 24 12.0 1.40 76.7 85.6 88.8 90.0 0.16 1.50
M 45 0 10.0 1.39 65.3 80.0 81.3 87.8 0.16 1.24
M 45 6 12.0 1.43 84.7 88.8 91.9 94.4 0.29 1.92
M 45 12 12.0 1.43 85.0 91.4 93.2 94.4 0.26 2.14
M 45 24 12.0 1.37 88.3 93.1 94.0 94.9 0.27 4.76
M 45 72 12.0 1.35 88.9 92.9 93.8 95.6 0.29 4.52
M 45 24 11.0 1.37 73.4 81.1 84.3 89.1 0.30 1.76
M 53 24 12.0 1.41 78.7 85.3 87.9 90.1 0.20 1.58
M 75 24 12.0 1.39 78.3 84.9 86.8 88.5 0.20 1.40

 

Further repeat tests on individual samples will be carried out to ensure that the whole ore-body reacts similarly to this process route.  Milling tests show that the ore’s Bond Index is low (13 kwh/t) so that the cost of fine milling should not be excessive.  The results will allow us to weigh the higher operating cost involved with finer milling against any recovery differential gained within the best matrix of residence times.  

A Preliminary Economic Assessment (PEA) study completed by Caracle Creek International (see NR Mar 3, 2008) indicated that the deposit is economically viable at gold prices above $US600/ounce and that the project has an NPV-5% of approximately $205m pre-tax at $1000/oz Au price levels. This economic study had assumed baseline metallurgical recoveries of 80%.  The sensitivity analysis that accompanies the study suggested that for each 1% change in metallurgical recoveries, the NPV-5% changes by approximately $6m at $1000/oz Au and by $10m at $1500/oz Au.  Although this economic model will be upgraded in Pre-Feasibility study (PFS), now underway, the effect of improving recoveries is likely to be similarly significant, emphasizing the importance of this work.

The three drill rigs on the Mara Rosa project have re-starting drilling after the Christmas break shut down.  Prior to the break, 3640m of drilling of the planned 7000m, had been completed.

The current drilling program is designed to move most of the material defined as an inferred resource within the planned $1000/oz gold open pit (based on the May 2010 resource estimate), into indicated and measured resource categories.  The program was designed to maximize this conversion using the minimum amount of drilling.  Amarillo has commissioned the same parties, i.e. AMC (Australian Mineral Consultants) and Hugo Hoogvliet, an independent consultant who completed the most recent May 2010 NI 43-101 compliant Mara Rosa estimate, to compile the new resource estimate at the completion of drilling.  Both experts  contributed to and approved the final design of the drill program.  
Table 2 below reflects the current Mara Rosa NI 43-101 compliant resource estimate.

Table 2.  Posse Deposit resource estimate at a 0.5g/t gold cut-off.

Cut-off Category Tonnes Grade Contained Oz
0.5 g/t Indicated 12,453,000 1.62 650,000
0.5 g/t Inferred 10,611,000 1.38 471,000

Buddy Doyle, President and CEO of Amarillo, comments: “Understanding the metallurgical characteristics is key to the successful mining of any deposit. The body of metallurgic work completed to date clearly shows the Company will be able to achieve higher gold recoveries than the conservative 80% recovery rate used in the PEA. Future work will now focus on further optimization of the metallurgy.  The projected increase in recoveries to the circa 90% level , when combined with the recent high gold prices (superior to those used in the PEA) bode well for a successful conclusion to the PFS study, of which the current drill and metallurgical programs are integral parts.“

The qualified persons for this news release, as per the guidelines within NI 43-101, are Buddy Doyle, a geologist of 29 years experience and a member of the Australian Institute of Mining and Metallurgy (AUSIMM) and Frank Baker, a metallurgist with over 30 years experience and also a member of AUSIMM and the IOM3.

ABOUT AMARILLO:
Amarillo Gold Corp. is a company focused on the acquisition, definition and discovery of gold resources in Brazil. Its principal projects are the Mara Rosa project in the state of Goiás and the Lavras do Sul project in the state of Rio Grande do Sul. The Posse Deposit at Mara Rosa was found by an independent 43-101 compliant preliminary economic assessment study carried out by Whitehouse and Hoogvliet to contain 650,000 ounces indicated from 12.4MTonnes @ 1.62 g/t Au, 471,000 ounces inferred from 13.8MTonnes @ 1.38 g/t Au at a 0.5g/t cut-off grade and the project is in the economic evaluation stage.  The Posse deposit is located in an area of excellent infrastructure located some 35 km NE of Yamana’s Chapada open pit Cu-Au operation, 105 km NE of Serra Grande’s underground Au mine, 105 km NNW of Anglo American’s nickel laterite project (in construction), 95 km NW of Votarintim’s Niquelandia nickel laterite mine and approximately 60 kms NE of Yamana’s Pilar Au project (in feasibility). Grid power to the site was established during the previous open pit mining operation and the Serra da Mesa hydro-electric dam lies 35 km to the east.  A new railroad is being constructed with 1.6km of the project.

The Lavras do Sul project is in the advanced exploration stage with over 15,000m of drilling with encouraging gold mineralization being discovered and defined, also in an area of excellent infrastructure.  The Company also has a portfolio of earlier stage projects. All properties under Amarillo’s management are located in areas of good infrastructure and robust community support.

ON BEHALF OF THE BOARD OF DIRECTORS

AMARILLO GOLD CORP.
    
Per:  “Buddy Doyle”    
           Buddy Doyle, President

Contacts:

Amarillo Gold Corp.
+ 1-604-689 1799 (Canada)
+55-31-3261 5974 (Brazil)
info@amarillogold.com

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

FORWARD LOOKING STATEMENTS:

This news release contains Forward Looking Statements regarding our intentions and plans. Various factors may prevent or delay our plans, including but not limited to, contractor availability and performance, weather, access, mineral prices and success and failure of the exploration and development carried out at various stages of the program. Readers should review risk factors applicable to junior mining exploration companies generally to understand the variety of risks that can affect the Company.