Palmarejo Silver and Gold Corporation
TSX VENTURE : PJO

Palmarejo Silver and Gold Corporation

May 25, 2006 15:06 ET

Palmarejo Silver and Gold Corporation Announces its Results for the Third Quarter Ended March 31, 2006

LONGUEUIL, QUEBEC--(CCNMatthews - May 25, 2006) - Palmarejo Silver and Gold Corporation (the "Company" or "Palmarejo")(TSX VENTURE:PJO) is pleased to report its results for the third quarter ended March 31, 2006. The unaudited interim consolidated financial statements and management's discussion and analysis for the quarter ended March 31, 2006 are available through CCN Matthews website at the following address: http://www.ccnmatthews.com/docs/Financial%20Statements.pdf and http://www.ccnmatthews.com/docs/_MDA.pdf. They are also available on Palmarejo's website (www.palmarejogold.com) and on the Sedar's website (www.sedar.com).

Financial Results

For the three-month period ended March 31, 2006, the Company incurred a net loss of $339,500 or $0.00 per share compared to a net loss of $3,876,100 or $0.22 per share for the three-month period ended March 31, 2005. The loss for the comparative period included expenses of $1,624,400 incurred as a result of the March 21, 2005 Business Combination Transaction (described in Note 2 of the unaudited interim financial statements for the quarter ended March 31, 2006) and stock-based compensation costs of $2,260,000 related to the grant of 5,530,000 options in December 2004.

For the nine-month period ended March 31, 2006, the Company incurred a net loss of $988,500 or $0.01 per share compared to a net loss of $3,913,500 or $0.49 per share during the initial 157-day period of 2005.

Administrative expenses, which consist mainly of remuneration, travel, stock exchange and transfer agent fees, totaled $286,300 for the three-month period ended March 31, 2006 ($113,000 in 2005) and $748,400 for the nine-month period ended March 31, 2006 ($116,100 for the initial 157-day period in 2005).

Stock-based compensation related to options granted in prior periods to purchase common shares of the Company, amounted to $142,700 for the quarterly period and $1,106,800 for the first nine-months of the year. The contributed surplus was increased by the same amount.

Gain on foreign exchange for the period amounted to $38,200 ($748,800 for the first nine-months of the year) and resulted mostly from timing differences between the date where investments denominated in US dollars were made and the exchange rate with the Canadian dollar as at March 31, 2006, and from differences in rates from December 31, 2005 to March 31, 2006 for monetary items denominated in US dollars.

After making adjustments for non-cash items in respect of stock-based compensation, gain on foreign exchange and net change in non-cash operating working capital items, cash used in operations totaled $190,300 for the three-month period ended March 31, 2006 and $696,700 for the first nine months of the year.

Investing activities

During the third quarter ended March 31, 2006, the Company invested a total amount of $4,972,900, including $4,464,400 in exploration and project development expenditures and $508,500 in recoverable sales taxes. Exploration and project development expenditures include $2,948,800 of drilling costs and $527,600 for various engineering activities.

The total investment of $4,972,900 was covered by advances from Fairview Gold Pty Limited ("Fairview"), a 100%-owned subsidiary of Bolnisi Gold NL ("Bolnisi"), the Company's majority shareholder. This amount was offset by the reimbursement to Fairview, during the quarter, of advances that had been made up to December 31, 2005.

Financing activities

On April 19, 2006, the Company completed a private placement financing of 7,894,737 special warrants at a price of $9.50 per special warrant for total gross proceeds of $75,000,000. Each special warrant entitles the holder to receive, without further consideration, upon exercise, one common share and one-half common share purchase warrant. Each whole warrant will be exercisable at a price of $12.50 for a period of 18 months from the date of closing of the transaction. Net proceeds from this offering is estimated at $71,200,000.

The special warrants and the underlying common shares and warrants are subject to a four-month hold period, expiring on August 20, 2006, or until such time as a receipt is obtained for a final prospectus in connection with the offering. Special warrants that have not been previously exercised will be deemed to have been exercised on the earlier of (i) the third business day after a receipt has been issued by a securities regulatory authority for a final prospectus and (ii) four months and a day following the closing of the offering. In the event a receipt for the final prospectus is not obtained within 60 days of the closing of the offering, each special warrant will entitle the holder to receive 1.04 common shares and 0.52 warrants of the Company.

During the nine-month period ended March 31, 2006, a total of 4,231,000 warrants issued pursuant to the financing of the Business Combination Transaction were exercised (following the Company's decision to call for their exercise) for total cash proceeds of $6,346,500 (nil during the third-quarter ended March 31, 2006). The 6,500 unexercised financing warrants expired on November 22, 2005.

In November 2005, Bolnisi exercised its 12,500,000 warrants, each warrant exercised for one common share of the Company, at a price of C$1.00 per share. The proceeds were applied to reimburse a portion of the debt due to Fairview.

During the quarter, a total of 269,334 options (321,668 during the first nine-months of the year) were exercised for cash proceeds of $277,900 ($335,900 for the first nine-months of the year).

At March 31, 2006, Bolnisi's ownership in the Company stood at 79.1%. Following the private placement offering of April 2006 and assuming the exercise of the special warrants, Bolnisi's ownership in the Company stands at 74.2% at May 25, 2006.

Balance Sheet

At March 31, 2006, the Company's assets stood at $36,315,800 compared to $15,492,600 on June 30, 2005, and included $4,378,400 in cash and cash equivalents, $5,541,600 in plant and equipment and $24,654,200 in exploration projects compared to $2,574,800, Nil and $12,258,200, respectively on June 30, 2005.

At March 31, 2006, the working capital deficit totaled $513,000, compared to a deficit of $1,603,700 on June 30, 2005 and shareholders' equity amounted to $31,261,200 compared to $11,207,900 on June 30, 2005.

Outlook

The Company has liquidities of approximately $70.0 million as at May 25, 2006 after reimbursing an amount of $6,327,800 for advances made to the Company by Fairview from January 1, 2006 to April 30, 2006. The Company, together with its controlling shareholder, believes that it will be able to meet its cash requirements for the remainder of the 2006 calendar year and well into 2007.

The Company is performing exploration and development activities on the Palmarejo area, the principal objective of which is to advance the Palmarejo project through the feasibility process. Activities are currently focused on drilling the Palmarejo and Guadalupe silver-gold projects, drilling other identified prospects aimed at expanding the inferred mineral resources as well as conducting the necessary metallurgical, engineering and environmental studies for feasibility.

Forward looking statement

Some of the statements contained in this press release are forward-looking statements. Forward-looking statements are not historical facts, and are subject to a number of risks and uncertainties beyond the Company's control, including statements regarding resources and reserves, completion of work program and studies, potential mineralization, exploration results and future plans and objectives of the Company. Resource exploration, development, and operations are highly speculative, characterized by a number of significant risks, which even a combination of careful evaluation, experience and knowledge may not eliminate, including, among other things, unprofitable efforts resulting not only from the failure to discover mineral resources but from finding mineral deposits which, though present, are insufficient in quantity and quality to return a profit from production. There can be no assurance that such statements will prove to be accurate and actual results could differ materially from those suggested by these forward-looking statements for various reasons discussed throughout the Company's filing statement dated March 14, 2005, and particularly in the section entitled "Risk Factors".

Palmarejo Silver and Gold Corporation is a silver and gold exploration company with projects in Mexico. Additional information is available on SEDAR (www.sedar.com).

The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release

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