Farallon starts shipping concentrates from Campo Morado

2009-01-22 10:00 ET - News Release

Mr. Dick Whittington reports

FARALLON PROVIDES OPERATIONAL UPDATE ON THE G-9 MINE

Farallon Resources Ltd. has released the following operational update on the company's G-9 mine at the Campo Morado polymetallic (zinc, copper, lead, silver and gold) property in Guerrero state, Mexico.

The commissioning process advanced substantially during the fourth quarter of 2008, and the mine and mill are still targeting full design production capacity in January, 2009.

As previously reported in Stockwatch on Nov. 10, 2008, all major construction activities on site were essentially complete at the end of October, 2008.

At Dec. 31, the company had approximately $14.1-million (U.S.) in cash on hand.

Since that time, Farallon has continued with its parallel track approach, completing operational construction of the mill, developing underground access to the high-grade Southeast zone, opening stopes for production and drilling underground delineation holes concurrently with mine production and mill commissioning.

As also reported in Stockwatch on Nov. 10, 2008, the company began operating according to a revised mine plan that focused on the most robust plan possible for the ensuing 20-month period. This was planned as a direct consequence of the deteriorating commodity market conditions at the time. Adjustments have subsequently been made to this plan to reflect the latest operational situation underground. The projected production under this revised plan is reported on the company's website, and while changes on a monthly basis are evident, no material changes to the annual targets are made. This new plan will form the basis for the company's operating budget for 2009. A comparison of the annual production targets between the two plans is shown in the attached table.

                                TOTAL 2009

                  November, 2008        January, 2009        Variance (%)

Tonnes                   547,500              550,050                0.5
Zinc (%)                    12.0                 11.7               -2.8
Copper (%)                  1.72                 1.57               -8.9
Lead (%)                    1.20                 1.23                2.5
Silver (g/t)              222.31               206.20               -7.2
Gold (g/t)                  2.99                 2.95               -1.2

In general, the company's initial production targets have been met. Commissioning of the mill continues. The mill has been producing zinc, copper and lead concentrates which are being trucked to the port of Manzanillo. The company has been receiving advance payments for the concentrates from Trafigura Beheer BV Amsterdam under existing off-take agreements on a regular basis. The company anticipates that the first shipments of concentrates, totalling some 6,500 tonnes, will be shipped in early February. To date, no major obstacles have developed that would cause the company to materially adjust its production targets and goals, although the recovery of copper in the copper concentrates has been disappointing to date.

The key operating results for November and December, 2008, at the G-9 mine are shown in the attached table.

Production                                    Nov. 2008        Dec. 2008

Tonnes mined                                     31,783           31,313
Zinc grade (%)                                     11.1             11.5
Copper grade (%)                                    1.5              1.6
Lead grade (%)                                      1.5              1.1
Tonnes milled                                    30,100           31,200
Zinc grade (%)                                      9.7             10.4
Copper grade (%)                                    1.2              1.4
Lead grade (%)                                      1.3              1.2
Tonnes zinc concentrate produced                  4,660            5,150
Zinc grade (%)                                       49               51
Zinc recovery (%)                                    78               81
Tonnes copper concentrate produced                  860            1,080
Copper grade (%)                                     14               18
Copper recovery (%)                                  33               42
Tonnes lead concentrate produced                    630              190
Lead grade (%)                                       14               20
Lead recovery (%)                                    21               11

The mine has met the initial months projections in the 20-month mine plan announced in November, 2008. Main access development has been completed and the company is now starting to mine in the Southeast zone. Concurrently, sufficient working faces have been opened to begin to deliver design tonnage of 1,500 tonnes per day to the mill. Meanwhile, underground delineation drilling has been focused on confirming and adding resources to the areas in the North zone where mining is also under way.

The mill has performed well during the commissioning phase and has operated for extended periods at design throughput rates. Metallurgy continues to improve as steady-state operations are approached and zinc, copper and lead concentrates are all now meeting, or very close to meeting, contract specifications. Metal recoveries are now a key focus for improved performance. Full design production rates are still expected to be achieved by the end of this month.

Over the past quarter, the downturn in metal prices has necessitated continued management of the costs associated with bringing the G-9 mine and mill into full production. Concerted efforts have been made by the company to reduce and contain costs in all areas including freezing of all salaries, a general hiring freeze, some staff layoffs and the renegotiation of supply contracts. The primary objective during these volatile times is to optimize operations, maximize cash flow and conserve cash.

At Dec. 31, the company had approximately $14.1-million (U.S.) in cash on hand.

Shareholders are reminded that the company has changed its financial year-end to Dec. 31 from June 30. As a result, financial statements for the period July 1 to Dec. 31, 2008, will be released on March 26, 2009. At that time, the company will provide a final reconciliation of the capital costs associated with the construction and development of the G-9 mine. However, the total capital cost is still estimated to be within 5 to 10 per cent of $139-million as reported in the release reported in Stockwatch on Nov. 10, 2008. The final numbers are therefore expected to be plus/minus 20 per cent above the estimate of $124-million in the December, 2007, preliminary economic assessment.

On a separate topic, shareholders should note that 76.4 million share warrants expired in December, 2008, significantly reducing the fully diluted share structure of the company. As the company makes the transition to commercial production, this will have a material effect on any earnings before interest, taxes, depreciation and amortization or cash flow per share ratios.

President and chief executive officer, Dick Whittington, stated: "I am extremely pleased with the ramp-up of the G-9 mine and mill. After a period of four short months, the operation is now ready for the next challenge to achieve full commercial production at 1,500 tonnes per day in January, 2009. This achievement is particularly notable given the necessity for the team to focus on cost reductions and cash management during the ramp-up and commissioning phase in response to the weakening external economic environment. Farallon is now operational and is poised to take advantage of any strengthening in the metals market with an efficient operation and lean cost structure. It is particularly rewarding to have brought a mine into production while others have been closing. I am extremely proud of the whole team that has got us to this stage in our development as a mining company. Our immediate focus now is to establish an operating track record and to survive any future downturn in metal markets."

We seek Safe Harbor.