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Amarillo Gold Updates on Metallurgical Studies at Flagship Mara Rosa project

Amarillo Gold Corp. (TSX VENTURE:AGC) received the latest update from the ongoing metallurgical studies being conducted on the Posse Deposit which is part of the 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. 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 cyanidization. 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 cyanidization achieved a recovery of more than 93%.

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."

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.

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.

Source: Amarillo Gold Corp.

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