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Kings Minerals shares rise on Cerro Del Gallo gold/silver project outlook

Last updated: 20:34 02 Mar 2010 EST, First published: 19:34 02 Mar 2010 EST

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Kings Minerals NL (ASX: KMN) has announced an encouraging $US260m net free cash flow, $US415/oz production cost ‘base case’ scoping study finding for the Cerro Del Gallo gold/silver project, part of the greater San Anton project in Guanajuato, Mexico.

Cerro del Gallo and the wider San Anton project are controlled by Kings Minerals’ 71.3%-owned, TSX-listed subsidiary, San Anton Resource Corporation Inc.

As announced on the 4th of February 2010, Kings Minerals and San Anton Resource Corporation have agreed in principle to a business combination that, if successful, will result in Kings Minerals having a 100% ownership interest in San Anton’s assets.

It is expected that the Kings Minerals/San Anton business combination proposal outcome will be finalised by end of May 2010, and is subject to the conditions noted in the 4th of February 2010 announcement.

The study represents a further advance on the indicative optimised pit and mine production schedule data released in 2009, and incorporates independently verified capital/operating projections andassumptions.

Key scoping study outcomes are:

- US$260M net free cash flow before tax (unadjusted for inflation) – post capital expenditure payback

- US$82M estimated initial capital investment to be paid back in 2.25 years

- US$415 per ounce average life-of-mine operating cost after silver credits

A full feasibility study will now proceed aiming for completion by last quarter 2010.

The 2011 current target for mining commencement is dependent on feasibility study results.

The newly completed Cerro del Gallo scoping study tested the probability of economically developing part of the deposit to recover gold and silver via open pit mining and heap leach/carbonin-leach (CIL) processing.

Importantly, the scoping study is a ‘base case’ guide to the possible economic feasibility for the operation, using simple mining and processing techniques to generate significant cash flow within a short time frame.

Options to further optimise this ‘base case’ will be reviewed during the full feasibility study to take place over the next 8 months. This will include options to further lift gold and silver recoveries.

The advanced status of the in-pit geological resource - 85% measured, 15% indicated – is a key positive factor enabling the company to progress planning with a higher degree of confidence.

The study indicates the opportunity to generate a significant cash flow from a relatively simple and low cost operation located in an area with well established infrastructure. The results from the study have also indicated that including CIL processing for the ‘fresh’ rock material will significantlyimprove the economics of the development.

More detailed metallurgical test work will be done to increase the confidence in the data and the possible improvement in the gold and silver recoveries for the different material types within the deposit and detailed engineering study and equipment costings.

Within the next 45 days, Kings Minerals NL will be releasing an updated NI43-101 compliant document as required for its majority owned Canadian listed San Anton Resource Corporation Inc.

The document will include all the details of the scoping study plus an updated independent review of the capital cost estimates.

The San Antón Project is owned by San Antón de las Minas SA de CV (SAM). SAM is owned 64% by San Anton Resource Corporation Inc and 36% by Goldcorp Inc.

Kings Minerals shares were trading 7% higher today.

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