Castle Gold Corporation

Castle Gold Corporation

March 26, 2009 13:37 ET

Castle Gold Signs Agreement With Mining Contractor at El Castillo Mine to Reduce Operating Costs and Ramp-Up Gold Production to 50,000 Ounce Per Year Target

TORONTO, ONTARIO--(Marketwire - March 26, 2009) - CASTLE GOLD CORPORATION (Castle Gold, the Company) (TSX VENTURE:CSG) is pleased to announce that it has signed a new mining contract with CAMSA, the current mining contractor at the Company's 100% owned El Castillo gold mine in Durango State, Mexico. The new contract provides for the mobilization of a fleet of larger mining equipment thereby enabling the ramp-up of production to in excess of 50,000 ounces of gold annually at reduced unit costs relative to the current contract.

Following a process that reviewed quotes from more than 10 interested contractors, the Company is pleased to have reached an agreement with CAMSA of Monterrey, Mexico, the original and current mining contractor at the El Castillo mine. The contract is for drilling, blasting, mining and hauling of material to waste dump areas, run-of-mine material to the leach pads (the majority of the ore material) and high-grade material to the screening-crusher plant (where material is reduced in size and then hauled to the leach pad by a separate contractor).

It is intended that the larger equipment to be employed under the new agreement will initially exist of 40-tonne articulated trucks and correspondingly sized loading equipment. This equipment replaces the recently used fleet of 7 - 20 and 7 - 30 ton trucks. The 40-tonne vehicles were chosen over other equipment options at this stage of the mine's life as the open pit is still relatively small in size with mining activities taking place in a number of areas while the open pit is developed. Once the open pit is further expanded over the next 2 years it is anticipated that larger (possibly 50 to 70-tonne trucks) could replace the initial fleet of 40-tonne trucks to achieve further enhanced mining efficiencies. Under the terms of this new agreement, unit costs of the mined material are reduced by 10% relative to the previous terms. At the expanded mining rate of 800,000 tonnes per month, this offers savings of approximately US$25 per ounce of gold produced.

Thomas Atkins, President and CEO of Castle Gold commented on the signing of the agreement stating: "Great work by our operating team at El Castillo in having been able to arrive at this contract. CAMSA has performed very well in the past working closely with our mine management team and so we're pleased to be able to continue this relationship. The terms of the agreement with CAMSA are among the most competitive we saw in our contractor bid review process and among the most competitive we saw in reviewing other open pit mining operations throughout Mexico. The cost savings equal approximately C$1.5 million per year and over the term of the contract translate into almost C$7.5 million or about C$0.10 per share. We're eager not only to be able to begin producing more ounces of gold with this equipment, but also to capture these operating cost savings. The mobilization of equipment is expected to take place over the next six to eight months with the first equipment expected to arrive in April. The impact of moving higher volumes of material is expected to be reflected in higher volumes of gold production approximately two months following the throughput volumes being achieved, in accordance with the gold leach cycles."

The contract with CAMSA is for a five year period, or up to 47 million tonnes mined, but is severable at declining penalty payments related to the future life of the equipment. The contract is transferable to Castle Gold at terms equal to the contractor's costs of leasing and residual equipment value plus demobilization with the Company then undertaking the future operation of the mining activities and equipment.

Capital requirements of Castle Gold to facilitate the execution of this contract are limited to US$600,000 consisting of monthly amounts of US$100,000 commencing April 2009. The total of these payments will be returned to the Company on a monthly basis over 16 months through a reduction in the amount of invoiced monthly contractor costs. The Company anticipates funding the US$600,000 in payments over the six month period from available cash and/or cash flow from the operation.

About Castle Gold

Castle Gold Corporation is a growth oriented gold producer with projects focused in the America's. The Company owns a 100% interest in the El Castillo gold mine in Mexico and a 50% interest in the El Sastre gold mine in Guatemala. Castle Gold is also advancing exploration and development work at its La Fortuna gold-silver-copper project in Mexico.

TSX-V Trading Symbol: CSG
Total Shares Outstanding: 75.3MM
Fully Diluted: 81.8MM
52-Week Trading Range: C$0.15 - $0.63

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.

Contact Information

  • Castle Gold Corporation
    Thomas Atkins
    President and CEO
    (416) 214-4809 or Toll Free: 1-866-646-3274
    (416) 366-7421 (FAX)
    Castle Gold Corporation
    Rory Quinn
    Manager Investor and Public Relations
    (416) 214-4809 or Toll Free: 1-866-646-3274
    (416) 366-7421 (FAX)