Magellan Minerals Ltd. (TSX VENTURE:MNM)(OTCQX:MAGNF) ("Magellan") is pleased to
announce the results of a positive Preliminary Economic Assessment ("PEA") on
the Coringa gold project in northern Brazil. The PEA was prepared by Global
Resource Engineering Ltd. ("GRE") and is based on the updated resource defined
in the National Instrument ("NI") 43-101 compliant technical report dated May
2012.
Highlights
-- PEA indicates an internal rate of return (IRR) of 33% for the project
and a net present value (NPV) of $109.9 M at a 5% discount rate and
assuming a gold price of $1,350 per ounce (all figures presented on an
after-tax basis)
-- Low initial capital cost of $64.5 M with a Life of Mine (LOM) total
including sustaining capital of $115 M, and projected operating costs of
$106/tonne milled
-- Average gold production of 50,885 oz/yr at steady state, with LOM
average cash cost of $531/oz, and a full cost including capital of
$819/oz, over LOM
-- Project payback of 2.9 years and LOM of 8.5 years from 750t/d
underground gold mine with a process recovery of 93.5%
-- Project economics using a current gold price of $1,720 per ounce
indicate a project IRR of 52% and a NPV of $206.1 M at a 5% discount
rate (all figures presented on an after-tax basis)
-- The study was based on the May 2012 NI 43-101 compliant updated mineral
resource estimate compiled using a 1g/t gold cut-off which outlined
Measured & Indicated resources containing 561,000oz gold (3.2Mt @ 5.5g/t
gold) and Inferred resources 534,000oz gold (5.5Mt @ 3.0g/t gold)
-- The PEA included current Measured and Indicated resources and limited
Inferred resources which will be upgraded in early 2013 through a
planned drilling program in conjunction with a planned feasibility
study. Typical mining dilution and recovery of 5% and 94% respectively
were estimated and a 4gpt cut-off was used to produce a mine plan
-- Given the robust economics of the PEA, the Company will commence a
feasibility study and drill program in order to make a construction
decision during Q4 2013.
MINERAL RESOURCES
The Coringa project is a shear-vein system, hosted in volcanic rocks from the
Salustiano Formation (1.87 Ga), and in granites from the Maloquinha suite (1.86
to 1.88 Ga), located in the Tapajos Gold Province. The Mineral Resource estimate
for the project was completed independently by GRE (see press release dated 22nd
March 2012) using Magellan's exploration database available up to the 20th of
December 2011.
The National Instrument 43-101 compliant resource estimate for each zone and
category are summarised in Table 1 and 2.
Table 1: Coringa Mineral Resources, 1g/t Gold Cut - Off Grade (Undiluted)
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Resource Area Tonnes Au (gpt) Au (grams) Au (oz)
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Measured
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Serra 520,000 7.29 3,793,000 122,000
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Valdette 18,000 1.22 22,000 1,000
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Meio - Come Quieto 335,000 7.15 2,395,000 77,000
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Galena - Mae de Leite 278,000 5.85 1,625,000 52,000
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Demetrio
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Total 1,151,000 6.81 7,835,000 252,000
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Indicated
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Serra 383,000 9.23 3,534,000 114,000
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Valdette 227,000 1.33 303,000 10,000
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Meio - Come Quieto 1,196,000 4.06 4,859,000 156,000
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Galena - Mae de Leite 217,000 4.23 917,000 29,000
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Demetrio
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Total 2,023,000 4.75 9,613,000 309,000
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Measured & Indicated
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All Areas 3,174,000 5.50 17,448,000 561,000
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Inferred
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Serra 482,000 6.55 3,156,000 101,000
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Valdette 1,661,000 1.33 2,216,000 71,000
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Meio - Come Quieto 1,948,000 3.01 5,865,000 189,000
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Galena - Mae de Leite 564,000 4.20 2,367,000 76,000
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Demetrio 856,000 3.52 3,010,000 97,000
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Total 5,511,000 3.01 16,614,000 534,000
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Table 2: Coringa Mineral Resources, 2g/t Gold Cut - Off Grade (Undiluted)
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Resource Area Tonnes Au (gpt) Au (grams) Au (oz)
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Measured
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Serra 446,000 8.27 3,688,000 119,000
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Valdette
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Meio - Come Quieto 285,000 8.14 2,319,000 75,000
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Galena - Mae de Leite 200,000 7.49 1,498,000 48,000
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Demetrio
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Total 931,000 8.06 7,505,000 242,000
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Indicated
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Serra 324,000 10.59 3,432,000 110,000
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Valdette
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Meio - Come Quieto 844,000 5.13 4,333,000 139,000
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Galena - Mae de Leite 122,000 6.44 786,000 25,000
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Demetrio
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Total 1,290,000 6.63 8,551,000 274,000
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Measured & Indicated
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All Areas 2,221,000 7.23 16,056,000 516,000
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Inferred
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Serra 408,000 7.41 3,025,000 97,000
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Valdette 60,000 2.32 139,000 4,000
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Meio - Come Quieto 1,355,000 3.64 4,936,000 159,000
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Galena - Mae de Leite 449,000 4.90 2,199,000 71,000
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Demetrio 448,000 5.39 2,415,000 78,000
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Total 2,720,000 4.67 12,714,000 409,000
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NOTE: Mineral resources that are not reserves do not have demonstrated
economic viability. An Inferred Mineral Resource is that part of a mineral
resource for which quantity and grade can be estimated on the basis of
geological evidence and limited sampling and reasonably assumed, but not
verified, geological and grade continuity. An Indicated Mineral Resource is
that part of a mineral resource for which quantity, grade or quality,
densities, shape and physical characteristics, can be estimated with a
level of confidence sufficient to allow the appropriate application of
technical and economic parameters, to support mine planning and evaluation
of the economic viability of the deposit.
I. MINING, PRODUCTION AND PROCESSING PLAN
The Coringa deposit is a narrow steeply dipping series of gold veins, located
near good infrastructure, making it amenable to proven U/G mining and processing
methods.
The overhand cut and fill mining method was selected for the PEA due to its
ability to provide a high degree of grade control and lower pre-production
development requirements. The method also allows for the backfilling of stopes
throughout the mine life with a hydraulic tailings product, reducing surface
tailings facility storage requirements.
A conventional Merrill Crowe milling circuit is the most attractive method for
treating the Coringa ores. Metallurgical test work performed as part of the
previous PEA on composite samples from the Serra and Meio blocks demonstrated
that the ore is free milling producing laboratory gold recoveries of 99.0% and
97.7% respectively using this approach. For study purposes, assumed recoveries
were 94% and 93% respectively.
II. OPERATING COSTS
Operating costs for the mine were based on cycle time calculations using
Brazilian labour and productivities calculated by GRE. The mining method using
slushers and stoper drills in the stope is somewhat labour intensive on a
$/tonne basis, but benefits significantly from low dilution and high mining
recovery on a $/oz basis. Plant operating costs were factored based on the plant
design and GRE sources in Brazil. The calculated average mine operating cost was
$106/tonne, which included mining, milling and G&A. Details are shown in the
table below.
---------------------------------------------------------------------------
Operating Costs ($/t)
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Mining Production $10.07
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Mine Backfill $17.31
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Transport $1.43
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Power $24.18
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Small Mine Equipment $2.63
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Processing $18.80
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G&A $1.70
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Mine Operations Labor $7.29
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Mine Maintenance Labor $6.97
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Mill Labor $8.95
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Salary Labor $7.03
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Overall Average $106.35
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III. CAPITAL COSTS
The basis of the capital cost estimate was a 750 tpd Merrill Crowe plant
operating in close proximity (22 km) to a paved road and a 138kV power line,
with locally sourced material and labour where practical.
GRE developed the costs for each area shown in the table below, using a
combination of equipment lists, design criteria, and equipment quotes, and
included costs for indirect costs, contingency, owner's costs and working
capital to determine the funding requirements for a commercial operation.
On this basis, the project requires $64.5M of preproduction capital expenditure,
followed by $50.6M of sustaining capital for a LOM total capital cost of $115M.
---------------------------------------------------------------------------
Capital Costs ($M)
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Category Pre-Production LOM
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Permitting $0.7 $0.7
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Feasibility Study & Site Investigations $3.2 $3.2
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Mine Development $1.9 $26.9
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Closure $0.0 $3.1
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Mine Equipment $11.6 $11.6
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Surface Facilities $46.4 $48.4
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Mine Equipment Principal - Financed $0.0 $0.0
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Replacement/Sustaining Capital $0.0 $18.5
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Working Capital $0.6 $2.6
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Total $64.5 $115.1
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IV. FINANCIAL ANALYSIS
Cost estimates for construction and operation of the project were based on
estimates made in Q2 2012 Brazilian Reals and US dollars. Conversions were made
using an FX rate of 2.03 R/US$. Estimates do not include inflationary factors or
fluctuations in gold price or currency exchange.
Based on the cost inputs shown in the previous tables and the financial inputs
shown in the table below, Coringa exhibits the strong financial characteristics
of a robust project in a low political risk jurisdiction.
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Financial Summary
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Parameter Value Comment
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Gold Price ($/oz) $1,350 In line with analyst consensus
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Discount Factor 5%
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FX 2.03 Brazilian Real / US$
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NPV ($ M) $109.9
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IRR 33%
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Payback (years) 2.9 From production start
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In terms of sensitivities to major project assumptions, the project is very
robust and is still economic under any one of the following scenarios: either a
gold price of US$1,000/oz, a capital cost increase of 50%, or an operating cost
increase of 50%. The project NPV rises to $206M assuming a current gold price of
$1,720 per ounce.
Sensitivity to gold price
---------------------------------------------------------------------------
Gold price ($/oz) NPV @ 5% ($M) Cumulative cash flow ($M)
---------------------------------------------------------------------------
$1,100 $44.53 $80.58
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$1,150 $57.62 $97.07
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$1,200 $70.71 $113.56
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$1,250 $83.75 $129.96
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$1,300 $96.85 $146.43
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$1,350 $109.87 $162.82
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$1,400 $122.88 $179.20
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$1,450 $135.90 $195.59
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$1,500 $148.92 $211.97
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$1,550 $161.94 $228.36
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Sensitivity to Operating and Capital Costs
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Operating costs Capital costs
---------------------------------------------------------------------------
Percentage NPV @ 5% Cumulative NPV @ 5% Cumulative
of cost ($M) cash flow ($M) ($M) cash flow ($M)
---------------------------------------------------------------------------
90% 127.16 184.31 117.51 170.67
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100% 109.87 162.82 109.87 162.82
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105% 101.13 152.00 105.99 158.89
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120% 74.96 119.50 94.48 147.11
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135% 48.67 86.86 82.86 135.33
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V. FORWARD PLANNING
The PEA notes that, "The vein system is open both at depth and along strike. It
is highly probable that the main vein system comprised of the three resource
blocks used in the study is more or less continuous between areas. It is
probable that this vein system also continues along strike beyond the extents of
the current resource blocks. There is also good potential to encounter
additional parallel vein structures within the exploration area held by Magellan
as demonstrated by the Serra resource block."
Kevin Gunesch, Principal Mining Engineer with GRE and one of the main authors of
the PEA, has advised Magellan that, "The results for the Coringa PEA study are
excellent and that the 33% IRR compares favorably with other gold projects at a
similar stage of development, especially in view of the significant
contingencies included within the Coringa study."
John Kiernan, P.Eng., Magellan's VP Project Development, stated, "The robust
economics shown in the PEA, indicate that Coringa is a project of merit and
worth advancing expeditiously. The project has good margins, is located near
infrastructure and in a mining friendly jurisdiction, and has the potential to
generate significant cash flow and earnings for Magellan's shareholders in the
near term."
Based on the results of the PEA, Magellan plans to advance the project through a
feasibility study, which will include a drilling program to upgrade resources
and condemnation drilling at the chosen plant infrastructure and tailings sites.
A decision regarding construction/production will be made at the conclusion of
the feasibility study, currently targeted for Q4 2013.
Full details of the Coringa PEA in the form of a National Instrument 43-101
technical report will be filed on SEDAR within 45 days.
Qualified Person
The Coringa preliminary economic assessment was prepared under the supervision
of Mr. Kevin J. Gunesch a registered Professional Engineer in the state of
Alabama (27448) and Principal Mining Engineer of Global Resource Engineering
Ltd. (GRE), Christopher K. Chapman a registered Professional Engineer in the
State of Colorado (40679) and Principal Mining and Civil Engineer of GRE and
Daniel Duche a registered Professional Engineer in the State of Ohio (71889) and
Senior Mining Engineer of GRE.
Mr. Gunesch is an "independent" and "qualified person" as such terms are defined
in NI 43-101. Mr. Gunesch has reviewed and approved the comments of this press
release.
John Kiernan P.Eng, Magellan's VP Project Development and a "qualified person"
within the definition of that term in NI 43-101, has reviewed the technical
information contained in this news release.
Magellan Minerals (TSX VENTURE:MNM)(OTCQX:MAGNF) is a TSX Venture Exchange
listed exploration and development company with two advanced gold properties in
the Tapajos Province of northern Brazil. The Cuiu Cuiu project contains
100,000oz of gold in the Indicated category (3.4Mt @ 1.0g/t gold) and
1,200,000oz of gold in the Inferred category (31Mt @ 1.2g/t gold). The Coringa
project contains Measured and Indicated resources of 561,000oz of gold (3.2Mt @
5.5g/t gold) and Inferred resources of 534,000oz of gold (5.5Mt @ 3.0g/t gold).
Cautionary Statements
This preliminary assessment is preliminary in nature. It includes inferred
mineral resources that are considered too speculative geologically to have the
economic considerations applied to them that would enable them to be categorized
as mineral reserves. There is no certainty that the results of the preliminary
economic assessment will be realized. Mineral resources that are not mineral
reserves do not have demonstrated economic viability.
Cautionary Note to U.S. Investors Regarding Reserve and Resource Estimates:
This press release uses the terms "measured resources", "indicated resources",
and "inferred resources" which are defined by the Canadian Institute of Mining,
Metallurgy and Petroleum, and are required to be disclosed in accordance with
Canadian National Instrument 43-101 (NI 43-101). The disclosure standards in the
U.S. Securities and Exchange Commission's (SEC) Industry Guide 7 normally do not
recognize information concerning "measured mineral resources", "indicated
mineral resources" or "inferred mineral resources" or other descriptions of the
amount of mineralization in mineral deposits that do not constitute "reserves"
by U.S. standards in documents filed with the SEC. In addition, resource that
are classified as "inferred mineral resources" have a great amount of
uncertainty as to their existence and great uncertainty as to their economic and
legal feasibility. It cannot be assumed that all or any part of an "inferred
mineral resource" will ever be converted into reserves. Under U.S. standards,
mineralization may not be classified as a "reserve" unless the determination has
been made that the mineralization could be economically and legally produced or
extracted at the time the reserve determination is made. Disclosure of
"contained ounces" in a resource is permitted disclosure under Canadian
regulations; however, the SEC normally only permits issuers to report
mineralization that does not constitute "reserves" by SEC standards as in-place
tonnage and grade without reference to unit measures. The requirements of NI
43-101 for identification of "reserves" are also not the same as those of the
SEC, and reserves reported by the Company in compliance with NI 43-101 may not
qualify as "reserves" under SEC standards. Accordingly, information concerning
mineral deposits set forth herein may not be comparable with information
presented by companies using only U.S. standards in their public disclosure.
This news release contains forward-looking statements. Forward-looking
statements address future events and conditions and therefore involve inherent
risks and uncertainties. Actual results may differ materially from those
currently anticipated in such statements. Particular risks applicable to this
press release include risks associated with achieving production on the project
within the parameters identified in the economic assessment, the ability of the
project to generate significant cash flow to the company and earnings to the
shareholders of the company. These statements are subject to risks due to
regulatory, technical, economic and other factors. In addition there is no
guarantee that additional exploration work will result in significant increases
to resource estimates. The reader is referred to the Company's most recent
annual and interim Management's Discussion and Analysis for a more complete
discussion of such risk factors and their potential effects, copies of which may
be accessed through SEDAR at http://www.sedar.com.
News Release #2012-18
FOR FURTHER INFORMATION PLEASE CONTACT:
Magellan Minerals Ltd.
Alan Carter
President and CEO
604-676-5663
info@magellanminerals.com
www.magellanminerals.com
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