Amarillo Signs Letter of Intent with Rio Tinto to Acquire Lavras Do Sol Gold Project

Amarillo Gold Corporation’s (TSX VENTURE:AGC) (“Amarillo” or the “Company”) proposal to obtain up to 100-per-cent interest in the Lavras do Sul Gold Project (the Property) in Brazil, has been accepted by Rio Tinto Desenvolvimentos Minerais Ltda. (“Rio Tinto”) after a competitive bid for the property. The project area covers a total of 9,122 hectares and is located in the state of Rio Grande do Sul approximately 350 kilometres by paved road southwest of the capital Porto Alegre.

The Lavras do Sul Project covers the northern half of the late Proterozoic Lavras granitic intrusion that has hosted intermittent gold production since the late 1800’s. Rio Tinto explored the Property in search of a greater than 10 million ounce gold deposit using a model that the area had size potential comparable to Paracatu, a bulk tonnage–low grade (947 mill. tonnes @ 0.44 g/t Au) gold mine in Minas Gerais state. After drilling approximately 3,000 metres Rio Tinto concluded that Lavras do Sul was unlikely to host a gold deposit of this order of magnitude, nevertheless a potential for 3 million ounces within the area optioned under this agreement has been indicated by both Rio Tinto work and Amarillo’s due diligence exercise.

Rio Tinto’s exploration included drilling two distinct prospects, Butia and Cerrito; both within 5 km of the town of Lavras do Sul and covered by old surface workings, which had previously been drilled by a local mining company, Cia Brasileira de Cobre (CBC). A total of 46 holes were drilled by the two operators of which some of the best intersections are:

LG003GD (RTM) 175m @ 0.75 g/t Au (Butia)
LG004GD (RTM) 181m @ 0.87 g/t Au (Butia)
BB-11-85 (CBC) 104m @ 1.03 g/t Au (Butia)
BB-01-85 (CBC) 184m @ 0.93 g/t Au (Butia)
BB-02-84 (CBC) 47m @ 1.04 g/t Au (Butia)
C-F06-86 (CBC) 65m @ 1.05 g/t Au (Cerrito)
C-F10-84 (CBC) 90m @ 0.78 g/t Au (Cerrito)
C-F07-89 (CBC) 101m @ 1.15 g/t Au (Cerrito)
C-F04-86 (CBC) 71m @ 1.08 g/t Au (Cerrito)

The gold mineralization at both prospects is open in a number of directions. The mineralization is associated with pyrite and hosted in structurally controlled alteration zones within the granite. Most of the above drill intercepts are from angled holes which tested the sulphide zone leaving the oxide zones largely untested. Preliminary metallurgical tests by Rio Tinto show the sulphide ore to be amenable to ‘flotation followed by leaching’ extraction techniques with recoveries predicted to be 92% by flotation followed by a further 92% by cyanidation or a net 85%. In addition to Butia and Cerrito there are numerous other alteration zones within the Lavras granite that have good potential for further bulk tonnage gold accumulations with similar mineralization. Many of these areas host surface gold diggings from the 1930’s but still remain untested by drilling and modern exploration.

Buddy Doyle, president and chief executive officer of Amarillo, said, “Management is extremely pleased to have signed up such a quality acquisition as Lavras do Sul. We are now in a strong position to quickly build on the Company’s existing resource base at Mara Rosa and take a major step forward to achieving our core objective of controlling at least 1 million ounces of economic gold resources.”

The Company plans to shortly commence its Phase 1 exploration program which will focus on three key objectives:

1. Further definition drilling of the Butia and Cerrito deposits which will be incorporated into a 43-101 compliant resource calculation for each deposit.

2. Controlled drilling of the shallow oxidized horizons in order to determine the potential for a viable heap leach operation which can be fast tracked into production.

3. Delineation of further drill targets over untested areas of alteration mapped by Rio Tinto utilizing both geochemical (soil and BLEG sampling) and geophysical (ground mag and possibly IP) methods.

Summary of Acquisition terms:

– Amarillo must make total payments of US$ 2.07 million through various installments up to April 1(st) 2008 in order to acquire an initial 60% interest in the Property.

– Amarillo is required to spend US$ 750,000 on exploration prior to Feb. 1st, 2008.

– Upon completing the above payments Amarillo will form a Joint Venture with the underlying owners. If the other parties elect not to contribute then Amarillo will earn a 100% interest in the Property and be required to pay a 1.5% Net Smelter Royalty on production.

– Amarillo will make a US$ 1,000,000 payment to Rio Tinto within 90 days of a bankable feasibility study being delivered and,

– Amarillo will make a US$ 6,500,000 payment for every one million ounces of recoverable gold reserves that is covered by the 60% equity in the Property over which Rio Tinto have an option.

– Rio Tinto will have a back-in-right to acquire 70% of Amarillo interest in the project by paying Amarillo three times (3 x) their exploration expenditure in the event that Amarillo’s equity interest in the Property contains in excess of 7 million ounces of recoverable gold.

– Amarillo will issue 2,000,000 warrants – exercisable at 50c – to Rio Tinto within 60 days of signing the final agreement.

This news release was written by Buddy Doyle and Rick Brown, Country Manager Brazil and COO. Both are qualified persons for the Lavras do Sul Project, as such term is defined by the National Instrument 43-101.