Palmarejo Silver and Gold Corporation
TSX VENTURE : PJO

Palmarejo Silver and Gold Corporation

July 28, 2006 11:53 ET

Quarterly Update on Activities on Palmarejo Silver and Gold Projects

LONGUEUIL, QUEBEC--(CCNMatthews - July 28, 2006) - Palmarejo Silver and Gold Corporation (TSX VENTURE:PJO) is pleased to report a summary of its activities for the quarter ended June 30, 2006. For more information about the Company's projects, please refer to the NI 43-101 Technical Report dated May 1st, 2006 available at www.sedar.com under Palmarejo Silver and Gold Corporation.



1. QUARTERLY HIGHLIGHTS

- Continued excellent drilling results from the Palmarejo Project.
- Important drilling results at Palmarejo Deeps.
- Important drilling results at Guadalupe.
- Palmarejo permits approved.
- Continued progress on Palmarejo development.
- Successful exploration at other targets identified in Trogan
tenements.
- Further tenement acquisitions.

Corporate
- C$75 million capital raising for Palmarejo finalised.

2. PALMAREJO SILVER-GOLD PROJECT (INCLUDING TROGAN)
GOLD AND SILVER EXPLORATION
TEMORIS, CHIHUAHUA, MEXICO
(PLANET GOLD SA DE CV)


The Company has, through its Mexican subsidiary company, Planet Gold SA de CV ('Planet Gold'), entered into acquisition agreements over a number of tenements, acquired a number of tenements and has applied for a number of exploration licences which all collectively comprise the Palmarejo Project and surrounding Trogan licence area. The Palmarejo Project and Trogan licence area are located some 15 kilometres northwest of the town of Temoris in Chihuahua State, Mexico and extend some 16 kilometres from Tres de Mayo in the south-southeast to beyond Palmarejo in the north-northwest.

As shown in the map below, the Palmarejo Project and Trogan licence area contain a number of mineralized properties of interest which are under investigation by the Company. The most important of these to date is the Palmarejo Project in the Chinipas municipality in the far north of the area of interest which covers the old Palmarejo gold-silver mine based on the La Prieta and La Blanca gold-silver bearing structures. The Palmarejo mineralized trend has been mapped for 3.0 kilometres southeast of the Palmarejo mine and include the La Finca and San Juan de Dios prospects.

In addition to the Palmarejo Project, geological mapping and reconnaissance alteration mapping has identified mineralized vein and alteration systems in the Trogan tenements located on four other strongly mineralized corridors. As shown in the map below, these mineralized corridors include:



- the Guadalupe-Las Animas trend;
- the Los Hundidos trend;
- Todos Santos-La Patria-La Virginia; and
- the Guerra al Tirano trend.


Of these targets in the Trogan licence area, most activity to date has been carried out on the Guadalupe-Las Animas Project with some drilling also having been commenced on some of the other identified targets.

New Tenement Acquisitions

During the June quarter Planet Gold added two further tenements, La Estrella which covers 60 hectares and Virginia which covers 12 hectares, to the Palmarejo Project and Trogan licence area.

Consideration for the acquisitions totals US$1,125,000, of which US$450,000 has been paid with the balance to be paid in five quarterly instalments totalling US$250,000 and two final payments totalling US$425,000 in two years.

(A map is available on the CCNMatthews website at the following address: http://www.ccnmatthews.com/docs/Palmarejo1.jpg)

2.1. PALMAREJO SILVER-GOLD PROJECT

Palmarejo Drilling and Assay Results

During the quarter, drilling continued on the Palmarejo Project. Since exploration drilling began at the Palmarejo Project in November 2003, a total of 97,199 metres of reverse circulation ('RC') drilling and 37,558 metres of diamond core drilling has been completed. During the June 2006 quarter 45 holes were drilled for 6,646 metres of RC and 5,164 metres of diamond core.

The emphasis in this drilling has been on extensional drilling to target the main high grade feeder structures at Palmarejo and additional drilling has been completed along strike of the La Prieta and La Blanca structures to test the mineralization potential in the La Finca area, southeast of Palmarejo. Two diamond rigs and one RC rig are currently onsite at the Palmarejo Project (other rigs are also currently drilling other targets within the Trogan tenements). The RC rig is engaged in strike extension targets at La Finca, whilst the diamond rigs have been targeting the high grade feeder structures beneath the main clavos on La Blanca and La Prieta.



Some of the more significant results from the drill holes reported in
full below include:
- 30.8 metres @ 1.08 g/t Au and 137 g/t Ag (3.4 g/t AuEq) including
2.3 metres @ 1.84 g/t Au and 319 g/t Ag (7.2 g/t AuEq) and
2.0 metres @ 9.85 g/t Au and 1,063 g/t Ag (27.6 g/t AuEq) and
3.0 metres @ 1.59 g/t Au and 174 g/t Ag (4.5 g/t AuEq) and
2.0 metres @ 0.94 g/t Au and 393 g/t Ag (7.5 g/t AuEq) PMDH567D
- 15.5 metres @ 1.71 g/t Au and 311 g/t Ag (6.9 g/t AuEq) including
8.0 metres @ 3.00 g/t Au and 462 g/t Ag (10.7 g/t AuEq) and
3.0 metres @ 0.34 g/t Au and 319 g/t Ag (5.7 g/t AuEq) PMDH569D
- 0.5 metres @ 28.20 g/t Au and 1,435 g/t Ag (52.1 g/t AuEq)
PMDH569D
- 1.5 metres @ 14.05 g/t Au and 25 g/t Ag (14.5 g/t AuEq) PMDH574
- 52.5 metres @ 0.77 g/t Au and 134 g/t Ag (3.0 g/t AuEq) including
9.5 metres @ 1.60 g/t Au and 327 g/t Ag (7.1 g/t AuEq) and
2.5 metres @ 1.39 g/t Au and 180 g/t Ag (4.4 g/t AuEq) and
2.0 metres @ 3.35 g/t Au and 613 g/t Ag (13.6 g/t AuEq) PMDH576D
- 1.5 metres @ 4.94 g/t Au and 711 g/t Ag (16.8 g/t AuEq) PMDH579
- 3.8 metres (true width) @ 38.35 g/t Au and 2,194 g/t Ag (74.9 g/t
AuEq) including
2.6 metres (true width) @ 59.41 g/t Au and 3,394 g/t Ag (116.0
g/t AuEq) PMDH583D
- 13.5 metres @4.83 g/t Au and 140 g/t Ag (7.2 g/t AuEq) including
3.5 metres @ 3.37 g/t Au and 82 g/t Ag (4.7 g/t AuEq) and
2.5 metres @ 2.28 g/t Au and 164 g/t Ag (5.0 g/t AuEq) and
3.5 metres @ 12.57 g/t Au and 257 g/t Ag (16.9 g/t AuEq) PMDH586D
- 4.6 metres @ 4.44 g/t Au and 211 g/t Ag (8.0 g/t AuEq) and
6.1 metres @ 1.59 g/t Au and 5 g/t Ag (1.7 g/t AuEq) PMDH590
- 1.5 metres @ 6.09 g/t Au and 98 g/t Ag (7.7 g/t AuEq) PMDH593D
- 1.5 metres @ 17.45 g/t Au and 61 g/t Ag (18.5 g/t AuEq) PMDH599

Notes:
- Assays have been calculated using a 1.0 g/t AuEq cut off, no top
cut; AuEq equals Au + Ag/60 based on a gold price of US$375 per
ounce and a silver price of US$5.77 per ounce; no recovery factor
used due to current metallurgical data.

- Internal voids (historic underground workings) have been excluded
from the mineralized intervals reported above.

- Intercepts are generally perpendicular to the mineralized
structures and therefore represent true widths. Where intercepts
are oblique to structures calculated true widths are noted.


Deeps Drilling

The deep drilling at Palmarejo has continued to explore the deep feeder zones on the La Blanca structure. The Rosario structural intersection has been interpreted to have been one of the main areas of fluid upflow. This concept has now been tested on the 076 clavo.

076 Deeps

The flow path interpreted to have fed the 076 clavo was intersected by holes PMDH583D and PMDH586D down plunge from the base of previously intersected high grade mineralization in the 076 clavo. The high grade feeder plunges in the direction of the Rosario Deeps feeder zone.

(A map is available on the CCNMatthews website at the following address: http://www.ccnmatthews.com/docs/Palmarejo2.jpg)

PMDH583D intersected (bulked) 3.81 metres (true width) @ 38.35 g/t Au and 2,194 g/t Ag (74.9 g/t AuEq). This bulked intercept included 0.45 metres down hole from 302.1 metres assaying 239.00 g/t Au and 13,373 g/t Ag (461.9 g/t AuEq).

PMDH586D intersected (bulked) 13.5 metres (true width) @ 4.83 g/t Au and 140 g/t Ag (7.0 g/t AuEq). This intercept included 3.5 metres from 362.1 metres assaying 12.57 g/t Au and 257 g/t Ag (16.5 g/t AuEq).

Further drilling is in progress on the 076 feeder zone and will be resumed on the Rosario Deeps when road and drill pad access is completed. Additional drilling is underway to extend areas of high grade mineralization along the margins of the 076 clavo where gaps exist in the current drill coverage.

Strike Extension Drilling

Drilling at La Finca has revealed shallow, gold-rich (relative to silver) mineralization in numerous narrow quartz veins (PMDH590 intersected 4.57 metres @ 4.44 g/t Au and 211 g/t Ag (8.0 g/t AuEq) and PMDH599 intersected 1.52 metres @ 17.45 g/t Au and 61 g/t Ag (18.5 g/t AuEq)). These veins are interpreted to be the segmented strike continuation of the La Prieta structure southeast of Palmarejo. Further work is underway to evaluate the significance of these encouraging results.

(A table is available on the CCNMatthews website at the following address: http://www.ccnmatthews.com/docs/StrikeExtension%20Drilling-table.pdf)

Resource Update

The resource estimation procedure utilised by the Company's resource consultants Mine Development Associates of Reno, Nevada is labour intensive, and applies judgement, prudence, experience and commonsense with the objective of increasing the likelihood of the estimate representing the deposit. This is particularly suited to a deposit such as Palmarejo and involves substantial input from the Company's own staff. As with all service suppliers and consultants to the mining industry there is currently an excess of demand and insufficient resources to supply that demand. As a consequence the resource update for the Company's current projects, Palmarejo, Guadalupe and La Patria are not yet ready for inclusion in this report and are expected by the end of September at the latest.

Palmarejo Project Development



In summary:

- Environmental permit for the Palmarejo Project has been received.
- All major mechanical equipment items have been ordered.
- Contracts for the main components of construction work are near
complete.
- Some major development works contracts have been awarded and work
started.
- Access road upgrade work has commenced.
- Permit for the importation of equipment and materials has been
received.


In parallel with the drilling program, a significant amount of feasibility study and project development work has continued including:

Engineering, Procurement, Design and Construction Management

The following table summarizes the progress of the engineering design and procurement to the end of the June 2006 quarter.



--------------------------------------------
--------------------------------------------
Activity Budget % Complete
--------------------------------------------
--------------------------------------------
Overall Project
--------------------------------------------
Metallurgical Test Work 100%
--------------------------------------------
Engineering Design
--------------------------------------------
Process Engineering 90%
--------------------------------------------
Engineering 83%
--------------------------------------------
Drafting 41%
--------------------------------------------
Procurement
--------------------------------------------
Tender and Award 60%
--------------------------------------------
--------------------------------------------


Purchase orders for the major mechanical equipment items were issued during the June quarter. The total value of these items is approximately US$16 million for a total expenditure of approximately US$22 million to date. The major items include the electrowinning circuit from Electrometals Ltd in Queensland, slurry pumps, thickeners, oxygen generation plant and mill modification work.

Contractors have submitted detailed bids for the earth works, civil work, steel plate work and structural steel work. These bids will be evaluated and contracts awarded early next quarter. It is expected that the work will be split between two contractors that have recently completed similar work on other developments in the Sierra Madres.

Infrastructure

Work on upgrading the 100 kilometre section of road between San Rafael and Palmarejo has commenced. The road has been completely surveyed and all permits obtained as part of the fixed price contract. The first part of the work is to start drilling sections of the road requiring blasting while the heavy equipment is mobilised to the sites.

The diesel power generators have been ordered from Caterpillar. The equipment consists of 9 x 2 megawatt generators, all control equipment and high voltage electrical equipment.

Construction of the tailings dam and environmental control dam (also part of the water supply system) will commence at the end of the current wet season in October/November 2006.

Mining

Meetings were held with mining contractors and equipment suppliers to ensure that there will be mining equipment available for the commencement of mining activity in the middle of 2007. The company is currently considering three international mining contractors, all with current operations in Mexico as well as the option of an owner operated fleet. Further negotiations will commence once the mining study has been completed by Mine Design Associates in Reno, Nevada following their completion of the updated resource estimate.

It is expected that pit development work will commence approximately 6 months prior to the commissioning of the processing facility.

Permits

During the June quarter, the environmental permit for the Palmarejo Project was approved by SEMARNAT (the Mexican Government environmental authority, Secretariat of Environmental and Natural Resources). The permit approves mining activities for a 10 year period, plus 3 years for reclamation, based on the Palmarejo Project mine plan as submitted by the Company to SEMARNAT. If the Company's mine plan changes, the Company can apply to SEMARNAT for an extension of the environmental permit. An application for extension of an existing operation is generally viewed favourably and is less onerous than a new application.

This permit is a significant step forward in the Company's objective to build and operate a major silver and gold mine at Palmarejo and enables the Company to commence earthworks for plant construction, facilitates the commencement of infrastructure (access road) upgrade and mobilise process plant and equipment for mine development as currently planned.

A permit, known as Pitex, for the importation of equipment, machinery and consumables to produce a product that will be exported (eg silver and gold) has been received for the Palmarejo Project. Under the North American Free Trade Agreement ('NAFTA'), there are no Mexican import duties on equipment originating from the USA or Canada. Application has been made for another permit, known as Prosec, which provides preferential import duties for equipment originating from non-NAFTA countries. This permit is expected to be approved early next quarter.

2.2. TROGAN EXPLORATION PROJECTS

As noted above, in addition to the Palmarejo Project, geological mapping and reconnaissance alteration mapping has identified mineralized vein and alteration systems in the Trogan tenements located on four other strongly mineralized corridors:



- the Guadalupe-Las Animas trend;
- the Los Hundidos trend;
- Todos Santos-La Patria-La Virginia; and
- the Guerra al Tirano trend.


Of these targets in the Trogan licence area, most activity to date has been carried out on the Guadalupe-Las Animas Project with some drilling also having been commenced on some of the other identified targets.

Guadalupe-Las Animas

The Guadalupe-Las Animas Project is within the Trogan tenements, approximately 7.0 kilometres southeast of the Palmarejo Project. Mineralized veins at Guadalupe are localized in a series of northeast dipping faults that can be traced for 1,500 metres along strike. The central portion of the structure is known as Guadalupe and the southern portion known as Las Animas.

During the June quarter, an exploration program has focused on Guadalupe Norte at the northern end of the project. Fourteen holes were completed for 1,823 metres of RC drilling and 1,503 metres of diamond core drilling. One diamond core rig and one RC rig are currently on site at Guadalupe.



An initial resource estimate will be completed in the next quarter.

Some of the more significant results from the drill holes reported in
full below include:

- 10.7 metres @ 1.48 g/t Au and 102 g/t Ag (3.2 g/t AuEq) TGDH063
- 20.0 metres @ 3.75 g/t Au and 328 g/t Ag (9.2 g/t AuEq) TGDH065D
- 7.0 metres @ 1.50 g/t Au and 210 g/t Ag (5.0 g/t AuEq) TGDH065D
- 1.5 metres @ 2.52 g/t Au and 323 g/t Ag (7.9 g/t AuEq) TGDH066
- 4.6 metres @ 0.17 g/t Au and 97 g/t Ag (1.8 g/t AuEq) TGDH067

Notes:
- Assays have been calculated using a 1.0 g/t AuEq cut off, no top
cut; AuEq equals Au + Ag/60 based on a gold price of US$375 per
ounce and a silver price of US$5.77 per ounce; no recovery factor
used due to current metallurgical data.

- Internal voids (historic underground workings) have been excluded
from the mineralized intervals reported above.

- Intercepts are generally perpendicular to the mineralized
structures and therefore represent true widths. Where intercepts
are oblique to structures calculated true widths are noted.



Guadalupe Norte Drilling

Deep drilling beneath high-level clay alteration at Guadalupe Norte has delineated wide zones of well mineralized quartz vein breccia beneath the 1,400 metre elevation level. We interpret there is at least 400 metres of potentially well mineralized structure beneath this level based on the geological model developed at Palmarejo and assuming the base of intense clay alteration reflects the top of the mineralized system. This area at Guadalupe Norte constitutes approximately 500 metres of relatively untested strike length.

(A map is available on the CCNMatthews website at the following address: http://www.ccnmatthews.com/docs/Guadalupe%20Norte%20Drilling-table.pdf)

Drill holes TGDH060, TGDH061 and TGDH063 targeted the northern continuation of the main Guadalupe structure and intersected weakly to moderately anomalous quartz vein breccia over variable widths at a high elevation on the structure.

Hole TGDH065D intersected several well mineralized zones at depth. The best intersection is a quartz vein breccia located between 384.00 metres and 404.00 metres. This interval returned a mean assay of 3.75 g/t Au and 328 g/t Ag (9.2 g/t AuEq) over a 20 metre interval. The other significant intersection averaged 1.5 g/t Au and 210 g/t Ag (5.0 g/t AuEq) over seven metres from 406.00 metres. The wide mineralized interval in hole TGDH065D confirms high grade silver and gold exist at depth well beneath the clay bloom. Further drilling is planned at depth down-dip (and/or down-plunge) and along strike of this hole.

Holes TGDH066 and TGDH067 pierced the structure at a high elevation where the vein is generally narrow and not well mineralized.

Hole TGDH069D intersected a wide interval of QVBX and associated stockwork. The interval returned a mean grade of 0.6 g/t AuEq that we consider to be the top portion of a strongly mineralized ore zone (clavo). Holes TGDH071 and TGDH074 D are following the structure down-dip to intersect the QVBX at elevations similar to those intersected in holes TGDH055D and TGDH065D.

La Patria

As shown in the project map above, the La Patria prospect is within the Trogan tenements, 6.5 kilometres south southeast of Palmarejo and 1.5 kilometres southwest of Guadalupe.

The La Patria target is hosted in a major left lateral flexure or jog in the La Patria-Virginia fault. The strike of the La Patria-Virginia fault structure is about 320 degrees both north and south of this jog, whereas for 60 metres the jog strikes 280 degrees. This can be seen both on the surface mapping and in the workings 100 metres below the surface where the stopes are localized along the more east-west section of the fault. The host rocks are andesite (basalt) in the hanging wall, a rhyolite dyke intruding the structure and sediments in the footwall.

An initial resource estimate will be completed in the next quarter.

Drilling at La Patria commenced in the March 2006 quarter and continued in the June quarter with 2 small RC rigs currently on site at La Patria and Maclovia to the south.



Some of the more significant results from the drill holes reported in
full below include:

- 1.5 metres @ 1.28 g/t Au and 111 g/t Ag (3.1 g/t AuEq) LPDH025
- 4.6 metres @ 1.00 g/t Au and 6 g/t Ag (1.1 g/t AuEq) LPDH026
- 3.0 metres @ 1.47 g/t Au and 27 g/t Ag (1.9 g/t AuEq) LPDH027
- 6.1 metres @ 0.79 g/t Au and 36 g/t Ag (1.4 g/t AuEq) LPDH034

Notes:
- Assays have been calculated using a 1.0 g/t AuEq cut off, no top
cut; AuEq equals Au + Ag/60 based on a gold price of US$375 per
ounce and a silver price of US$5.77 per ounce; no recovery factor
used due to current metallurgical data.

- Internal voids (historic underground workings) have been excluded
from the mineralized intervals reported above.

- Intercepts are generally perpendicular to the mineralized
structures and therefore represent true widths. Where intercepts
are oblique to structures calculated true widths are noted.


(A table is available on the CCNMatthews website at the following address: http://www.ccnmatthews.com/docs/La%20Patria%20-%20table.pdf)

Drill holes LPDH025 and LPDH026 were drilled from the same location on the southern extension of the La Patria structure. Both holes crossed several small zones of stockwork and quartz veins breccia confirming continuation of the structure at this location.

Holes LPDH027 and LPDH028 tested continuity of the vein at depth. Both holes cut wide zones of anomalous quartz vein breccia (9.5 metres of QVBX in LPDH028).

LPDH029 and LPDH030 were deep holes drilled south of the main workings and shows that the clavo has thinned in this direction.

Holes LPDH031, LPDH032, LPDH033 and LPDH034 were drilled where down plunge of the main La Patria clavo and intersected wide zones of strongly anomalous gold and silver. Low Ag:Au ratios (less than 30) suggests the structure was intersected at a low level in the epithermal system.

Partial results from hole LPDH035 were received drilled south along strike of holes LPDH031 to LPDH034. The results correspond to the upper portion of the hole, which intersected 22.9 metres of anomalous quartz vein breccia above the target zone. This anomalous zone has been detected also in holes LPDH032, LPDH033 and LPDH034.

Guerra al Tirano Project

Drilling in the Guerra al Tirano district targeted two sperate structures. The first three holes were drilled into the Tres Cruces structure and intersected only narrow (1.0 metre to 3.0 metre) weakly anomalous quartz vein breccia.

The fourth and fifth holes in the Guerra al Tirano district were programmed to test the down dip continuation of the main Reyna de Oro structure. The Reyna de Oro structure at outcrop is not part of the Company's tenements. Both holes cut six to seven metres of weakly mineralized quartz vein breccia.

(A map is available on the CCNMatthews website at the following address: http://www.ccnmatthews.com/docs/GuerraalTirano%20Project-table.pdf)

Virginia

The Virginia target is a silver-rich continuation of the La Patria structure southeast of La Patria mine. The target has been explored by surface trenching for 350 metres along strike has only had minimal past mining to a depth of 20 metres below surface.

A drilling program to test the Virginia target consists of 25 holes for a total of 3,435 metres. The first phase of drilling is planned on 80 metre-spaced sections between and along strike of the two main shafts at Virginia.

All of the drill pads are ready and drilling will commence in the near future.

San Juan de Dios

The San Juan de Dios target is a silver and gold mineralized continuation of the La Blanca structure through La Finca, approximately 3 kilometres southeast of the Palmarejo Project. The target has been previously underground mined on a small scale producing some high grade silver and gold bearing ore.

A 28 hole drilling program for a total of 3,300 metres has commenced to test the San Juan de Dios structure.

Quality Assurance

Palmarejo Silver and Gold Corporation has put in place a rigorous QA/AC program consistent with National Instrument 43-101 and using best industry practice. The QA/QC program is independently supervised by Keith Blair, Msc, PGeo of Applied Geoscience of Reno, Nevada.

Elements of the program include chain of custody of samples, standard and blank samples submitted to ALS Chemex, with each batch of samples, and a check assay program on a proportion of sample pulps with a second laboratory. Results from the QA/QC program have to date been satisfactory.

Qualified Person

The technical information contained in this release was compiled in accordance with the Listing Rules of the Australian Stock Exchange Limited, by a competent person who is a corporate member of the Australasian Institute of Mining and Metallurgy and who has consented to the inclusion of such technical information in the form in which it appears in this release. The competent person is Kenneth M. Phillips, geologist of VOP Mining Services Pty Ltd who is also a director of Bolnisi Gold NL, the Company's majority shareholder. Mr. Phillips is a qualified person under Canadian Securities Administrators National Instrument 43-101.

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 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 Annual Information Form dated May 25, 2006, and particularly in the section entitled "Risk Factors".

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

Contact Information