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Armistice Resources Begins Surface Drilling Program at McGarry and Kerr-Addison Properties

Armistice Resources Corp. (TSX: AZ), which expects to begin gold production in the 2011 fourth quarter from its McGarry Mine gold project in the Kirkland Lake area of northeastern Ontario, today announced that it is commencing a major surface diamond drilling program on its McGarry and Kerr-Addison properties.

  • Armistice commencing $2.5 million drilling program, initially for 60,000 feet on McGarry and Kerr-Addison properties
  • Armistice moving into pre-production mode at the McGarry Mine gold project's underground operations in the second half of March, with the goal of meeting planned start-up of gold production in 2011 fourth quarter
  • Proceeds of recently completed financing to fund new drilling program and pre-production work

The new drilling program will be initially for 60,000 feet and is estimated to cost about $2.5 million. The company expects delivery of a diamond drill within the next week.

"For some months now, our geological staff has been reviewing the previous drilling results on the McGarry property, as well as selected historical data available for the Kerr-Addison property," said Todd J. Morgan, President and Chief Executive Officer of Armistice.

"Our review of the Kerr-Addison property data included underground and surface diamond drilling results that were obtained between the late 1930s and 1996. Although the Kerr mine was once Canada's largest gold producer, yielding 11 million ounces from 1938 to 1996, the fact is that only a small percentage of the Kerr-Addison property has ever been explored through a drilling program. Our initial review has identified a number of gold zones that we believe have the potential to be mined economically.  We will be looking to our new drilling program to confirm this view," Mr. Morgan continued.

In December 2010, Armistice signed an Option Agreement to purchase 100% of the former Kerr-Addison Mine property, making the first of five $500,000 payments and issuing 2.0 million common shares to the group of private investors controlling ownership of the property.

"We are progressing as planned with the preliminary work required to resume underground operations for pre-production at the McGarry Mine gold project. Current work includes hiring key personnel, commissioning upgrades and modifications to the hoisting plant, acquiring additional production equipment, and making upgrades to the surface infrastructure. We expect to move to pre-production mode in the underground operations in the second half of March, as the required skilled miners are hired," said Mr. Morgan.

The new surface drilling program on the McGarry Mine gold property follows a successful surface exploration program that the company completed in late 2009. The analysis of that drilling program was very positive regarding the existence of additional economic gold zones on the McGarry property.

Drilling Program Overview

"We have recently completed a preliminary review of the extensive data found in the historical documents of the former Kerr-Addison Mine property, including drill logs, plans, and reports," Erik Andersen, P. Eng., Armistice's Vice-President and Chief Operating Officer. "From this review, Armistice has made preliminary interpretations of the data to establish priority target areas for our initial surface drilling program on the Kerr-Addison property.  We have identified seven priority and five secondary target gold zones for drilling on the two properties.

"Kerr-Addison's archive is not well organized and we cannot verify any of the data at this time. Also, we cannot be certain that the portion of the data evaluated is complete for the areas selected for the initial drilling program that the company will carry out. Our planned surface drilling program also includes the continuation of the successful surface exploration drilling and sampling program that we completed on our McGarry property in 2009," Mr. Andersen continued.

Priority Drill Targets

The Mill Zones have been identified by historical diamond drilling on the 1,000-foot level and from historical surface drilling. The zones are fairly well-defined over a strike length of 2,000 feet. On the 1,000 ft level there is indication of a zone 5-to-15-feet wide and grading in the order of 0.10 to 0.15 oz/ton. From surface to 1,500 feet below surface there are at least 23 holes with intersections of 0.1 oz/ton or better over a core interval of at least 4 feet. The widest is 0.15 oz/ton over a core interval of 13.4 feet and the highest grade is 0.85 oz/ton over a core interval of 5 feet (two of these). In addition, two surface holes believed to correspond to the Mill Zone drilled in the 1940s intersected 0.12 and 0.15 oz/ton over core intervals of 67 and 57 feet, respectively. The Mill Zones are located 900-to-1,500 feet south of the main production areas in the former Kerr-Addison mine and in proximity to the G Zone discussed below.

The indication of gold zone widths in excess of 50 feet and strike lengths to 2,000 feet in the Mill Zones has led to placing this as one of the priority targets for the initial phase of drill testing on the Kerr Addison property.

The G Zone was mined by Chesterville Mines Limited prior to the amalgamation of its holdings under Kerr Addison Mines Limited in the mid 1950s. Mining occurred between 875 and 1,750 feet below surface. The G Zone was not mined on the Kerr-Addison side of the property boundary as it existed then. Exploration drilling between 1988 and 1992 extended the zone to the east, west, and down dip. The G Zone is located between the former main production areas and the Mill Zones.

Historical drilling along strike from the mined part of the G Zone includes at least 27 holes with intersections in excess of 0.1 oz/ton over core intervals of at least 4 feet. Two of the best results were 0.30 oz/ton over a core interval of 33 feet and 0.76 oz/ton over a core interval of 5 feet.

The near surface potential of the G Zone and the strike continuation potential of this former production area have led to placing it as one of the priority targets in the currently planned drill program.

The Green Giant Zone was discovered by diamond drilling from underground on the 1,000 ft Level in 1994, two years before the Kerr-Addison mine was closed. The gold zone is several hundred feet north of the former workings in the Mine. Diamond drill results were published in a news release issued by the then owners of the Kerr-Addison mine property, AJ Perron Gold Corp. in October 1994.

Armistice has not verified these results, but they are interpreted as pointing to a very important target for future diamond drill testing.

The Chesterville East Zone was originally discovered in an underground exploration program by Chesterville Mines Limited in the 1950s but was not followed up on until the 1980s and 90s in an underground drifting and drilling program. Past work on this zone was concentrated between 1,600 and 3,100 feet below surface. Previous operators recommended drill testing the up dip potential from surface but this work was never undertaken.

It is planned to drill test the up dip potential of the Chesterville East Zone as a priority target area in the currently planned drill programme.

The Armistice Mill Zone on the McGarry property is interpreted on the same general strike as the Mill Zones on the Kerr-Addison property. The Armistice Mill Zone was discovered early in the history of the camp and has been tested by several previous campaigns. Previous operators appeared to have had difficulty in determining continuity of the intersected gold zones.

Armistice tested the zone by diamond drilling in 2009 and reported the results in a news release dated January 20, 2010.

The Armistice Mill Zone is interpreted to have very good potential for the discovery of economic gold zones along strike and at depth and therefore will be a priority target in the planned surface exploration program.

Since the 1940s, exploration for gold zones above the 1,250 Level at the McGarry mine gold project has been limited. Armistice has previously identified the area above the 1,250 level as a priority area for exploration since mining infrastructure already exists to service production from this area. Armistice carried out the initial phase of near-surface drilling in 2009 and reported the results in a news release dated April 28, 2010. The results reported confirm the continuation to surface of the gold zones planned for mining in lower levels of the deposit. The 2009 drilling program covered a very limited extent of the near surface area to be tested and continuation of the results obtained remains a priority.

Secondary Drill Targets

Armistice re-examined in 2010 the historical Arjon Surface Showings, identifying a trend of carbonate altered rocks with anomalous gold values in grab samples over 1,500 feet of strike. Seven of the best grab sample values ranged from 0.17 to 0.03 ounces gold per ton. This trend is virtually untested by diamond drilling and warrants initial drill testing to determine its potential for the discovery of new economic gold zones.

The Kerr West Zone is identified from historical surface and underground drilling by Kerr Addison Mines Limited. A surface hole intersected 0.14 oz/t gold over 13 feet at about 185 feet below surface. Most of the underground drilling, done between 2,500 and 3,850 feet below surface, intersected low-grade gold values within a green carbonate unit. The follow-up by previous operators is limited and the area warrants further drill testing, especially since it would open up a new area within the reach of the existing mine workings.

The Mill Zones 1 & 2 West occur within green carbonate altered rocks within which low-grade gold intersections from surface drilling is recorded in the historical record, including an intersection of 0.04 to 0.05 oz gold per ton over 55 feet. Follow-up drilling is warranted to determine if previous drill campaigns were based on a misinterpretation of the dip of the zone.

The J Zone Deep includes historical drill intersections varying from 0.12 to 0.22 oz gold per ton over widths varying from 4-to-30 feet at about 2,650 feet below surface. Drill testing for up dip and along strike continuation of the zone is warranted. The J Zone may be the western extension of the Chesterville East Zone.

"We will continue to compile and evaluate the historical data from the former Kerr-Addison Mine and we anticipate that we will develop additional near-surface targets," Mr. Andersen said.

Funding

"Our recently completed financings are enabling us to move aggressively forward with the planned exploration programs on the McGarry and Kerr-Addison properties, as well as with our plans to be producing gold at the McGarry mine gold project by the fourth quarter of this year," Mr. Morgan said.

On February 22, 2011, Armistice announced that it closed a $3 million bridge loan and executed a term sheet for a $15 million Senior Secured Gold Stream Debt Facility with Waterton Global Value, L.P. (Waterton).  As announced, under the terms of the proposed gold facility, Armistice will be able to access the $15 million of funds in three tranches. The first tranche of $7 million is to be provided by Waterton immediately on the initial closing date of the facility agreement, expected to take place within 60 days of the initial announcement. The second tranche of $4 million will be accessible five months after the initial closing date, subject to Armistice's satisfaction of certain development and processing targets. The third tranche of $4 million will be available nine months following the initial closing date, again subject to Armistice's satisfaction of certain development and processing targets.  Armistice agreed to apply a portion of the first tranche drawn under the Gold Stream Debt Facility to repay in full any and all amounts outstanding under the $3 million bridge loan provided by Waterton.

Qualified Person

The exploration program reported on here is supervised and managed by Erik Andersen, P.Eng., Vice-President and Chief Operating Officer of Armistice Resources and a Qualified Person as defined by National Instrument 43-101.  Mr. Andersen has reviewed and approved this news release.

Source: Armistice Resources Corp.

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