The key to Amarillo’s formula for success involves the aggressive development of its 100%-owned, advanced-stage Mara Rosa gold project in central Brazil. This consists of two under-developed, past-producing gold deposits – one of which still benefits from drill-defined historic gold resources. 

 

Amarillo (http://www.amarillogold.com/) also entered into an option agreement to earn a majority interest in a second advanced-stage Brazilian gold project in September of this year. The Lavras Do Sol Project is a comparable situation to Mara Rosa in that it involves well-drilled, near-surface mineralization that is equally amenable to bulk tonnage, open-pit gold mining. More on this later.

 

Flagship Property Highlights: Revitalizing Under-developed Pilot Mines

The centerpiece of the Mara Rosa Project is the Posse Deposit. This involves a quarry-like mine complex consisting of two open pits – situated about 500 metres apart – that yielded about 80,000 ounces of gold in the early 90’s.

 

At that time, only the easy-to-process oxide ore was recovered to a depth of no more than 30 metres, leaving all of the sulphide-hosted mineralization below virtually untouched. The deposit was subsequently shut down due to a slump in gold prices,  and a corresponding downturn in the mining industry.

 

Located in topographically gentle terrain in Goias State, the expansive 45,385-hectare Mara Rosa Property is situated in a geologically very fertile environment. And it has seen little in the way of modern-day, systematic exploration.

This is no longer the case with the arrival of Amarillo in 2005. Since then, the Company has made impressive headway. Among its accomplishments in a relatively short time frame, Amarillo has identified new gold discovery zones beneath the North Posse deposit, that clearly offer the prospect of significantly expanding the Posse Deposit’s estimated historic resource base. Indeed, SmallCapMedia believes that a minimum one-million-ounce-plus gold resource is readily attainable at the Posse Deposit.

Additionally, the presence of a number of sizeable mineral targets along strike (the direction of the deposit’s mineralized horizon) offers plenty of ‘blue sky’ potential for adding significantly more gold resources.

Mara Rosa Project Area History

By way of a little background, global mining heavyweigtht BHP Ltd. discovered the Posse Deposit in 1982. Western Mining Corporation joint ventured into the project area in 1987 and set about excavating some of the near-surface ore at the Posse and nearby Zacarias deposits so that exploration activities in Brazil would be self-financing.

Between 1992 and 1995 a total of 750,000 tons of ore were mined at an impressive average grade of 3.5 grams per tonne (g/t). This translates into a total of 80,000 ounces of gold that was very profitably processed by way of a gravity circuit and CIL plant and a heap leach operation (a late 20^th century technology that has dramatically reduced mining costs in recent years).

In November of 2005, Amarillo finalized its outright acquisition of the Mara Rosa Project from Metallica Resources Inc., for US $450,000. This is after the two previous operators had already spent in excess of US $3 million on the project – most of which was committed to completing a detailed resource calculation at the Posse Deposit’s twin open pits.

Ongoing Drill Results at Posse Provide a Further ‘Shot in the Arm’ with the Discovery of New Gold Zones

Amarillo is currently in the early stages of an expansive drill program aimed at delineating the full size and scope of these known gold deposits. Initially, the Company is focusing on both infill and step-out drilling at the Posse mine complex.

Encouragingly, the Posse open pits still contain a largely unexploited historic resource that we will discuss in a moment. Meanwhile, a recent 26-hole drill program spanning approximately 2,600 metres has led to the discovery of two new  structural feeder zones at the North Posse pit that plunge beneath the deposit’s from surface.to a depth of greater than 150 metres.

Drill highlights to date at North Posse include drill hole SPET1-10 which encountered 21 metres of 2.83 g/t gold, including an intercept of 1 metre of 30.26 g/t gold. Meanwhile, most of the other drill holes in this pit also intersected consistent and continuous gold mineralization, running to depth. Likewise, drilling at South Posse also produced comparable results. For instance, drill hole SPET1-03 returned values as high as 30 metres of 2.51 g/t gold, which included a 6-metre intercept of 5.7 g/t gold.  

Posse Deposit to Soon Benefit from an Updated and Enhanced Resource Tonnage Calculation 

Concurrently, there is ongoing delineation drilling taking place within the Posse deposit’s existing parameters. This is aimed at identifying new mineralized zones, as well as helping to augment historical drill data that is being used to compile an updated National Instument (NI) 43-101 compliant resource inventory.

This is being conducted by South American Management S.A. – an independent geological and mining consulting group based out of Santiago, Chile. This new resource calculation will also benefit immeasurably from the fact that historically no less than 190 drill holes have been completed on the Posse Deposit.

Notably, preliminary studies related to this soon-to-be-published report suggest that extensive mineralization above the 150 metre sub-surface mark is amenable to being economically extracted by open pit mining.

For reference purposes only, it is worth noting that past drilling (mainly conducted by Western Mining) outlined a preliminary resource of 12.8 million tonnes of 1.8 g/t gold, translating into 726,000 ounces to a depth of 350 metres.

It was estimated that the gold content down to 300 metres below surface entails 6.3 million tonnes of 1.81 g/t in the measured category. A total of 4.9 million tonnes of 1.67 g/t gold were reported in the indicated category and a further 1.42 million tonnes of 1.94 g/t gold were inferred. Factoring in these figures was a 1 g/t cut-off (the minimum estimated grade for an economic mining operation). However, this was during an era of much lower gold prices. A lower cut-off grade may now be applicable.

However, it should be noted that this resource calculation was completed prior to the implementation of the NI 43-101 guidelines which constitute a federal-government recognized standard of a ‘measured resource.’

Not long after this historic resource calculation was completed, the project operator at that time, Metallica, mothballed the property due to cyclically low gold prices. Several years later in 2003, Metallica shifted its global focus to Chile and Mexico. As previously mentioned, this scenario allowed Amarillo to acquire the property on very favourable terms.

Zeroing-in on New Discovery Prospects at Mara Rosa

Amarillo is now confident of expanding the Posse Deposit along a lateral plane as well. This is due to a confluence of corroborative geological indications in support of new mineralized discoveries. 

Among the best new prospects is an impressively sized 10-kilometre-long by 100 metre wide geochemical anomaly has been discovered along strike from the Posse’s two open pits. The importance of this key development is underscored by the fact that a number of compelling geophysical anomalies overlie this large gold-in-soil target area. By way of explanation, geophysics typically acts as a reliable indicator of the vertical parameters of sub-surface mineralized systems. 

Additionally, a series of garimpeiros (artisinal) workings also occur to the northeast of the Posse Deposit, which attest to the presence of near-surface gold, much of which is hosted by high-grade gold veins. This is where many of the garimpeiros focused their alluvial gold mining activities over the last two centuries.

Needless to say, most of their rudimentary workings have literally just scratched the surface and have not benefited from any modern exploration techniques or drilling to probe for deeper mineralization. Hence, a number of drill-ready targets already exist.

Regional Scale Discoveries in the Offing?

All of these various compelling exploration findings fall within a largely unexplored 10-kilometre-long mineralized corridor, most of which is now owned by Amarillo. This trend has now been demonstrated to be an extension of the same structure/lithology that hosts the Posse Deposit.

 

To illustrate this fact, Amarillo has completed 26 trenches spaced along approximately 3,000 metres of this mineralized corridor or trend. Assay results have been very positive, offering consistent gold values that compare favourably with the Company’s gold-in-soil sample findings. Accordingly, a select number of step-out drill holes are being conducted in the vicinity of North Posse to confirm the economic potential of some of the new discovery prospects.

 

One area of particular interest is the 400-metre-long Bussu garimpo, which is four kilometers east of the North Posse pit. This garimpo is one of the largest old workings in the district and has never been drill tested. If results are positive, a series of drill holes will also probe for deeper mineralization in the form of down-dip (plunging) extensions.

Amarillo’s management is therefore very confident that that good potential exists to locate new high grade gold zones along a northeast extension to the Posse Deposit’s 1.2-kilometre strike length.

All told, Amarillo’s contiguous (uninterrupted) swathe of land holdings may yet reveal a linear series of important, near-surface mineralized structures. All of which clearly translates into a number of ‘blue sky’ opportunities.

Favourable Mining Economics Provide a Further Boost

In such a tropical environment, much of the near surface rock is altered by rainwater to a soft, clay material called saprolite. Due to the softness of this oxidized blanket, saprolite ore requires minimal or no drilling, blasting or even crushing. The resulting very low strip ratio (amount of waste rock compared to ore) should make the mining of any new near-surface discoveries extremely inexpensive.

 

In other words, this scenario dramatically improves the odds in favour of the realization of a commercially viable new ore deposit. This is assuming that the exploration and development of new target areas continues to meet success in the coming months.

 

Ideal Infrastructure Already in Place

From a logistical perspective, the Mara Rosa Project benefits from excellent infrastructure which makes the project economics all the more robust. It is located in a rural farming area of central Brazil’s Goias State among gently rolling hills. The project can be worked year-round while road access throughout the vicinity is excellent. Electric power is readily available, as is an abundant supply of water. Furthermore, the Posse deposit is already permitted as a mine site.

 

The property is also a mere five kilometers from the fully-serviced town of Mara Rosa, which has 25,000 inhabitants and a ready labour force. And Brazil’s capital city, Brasilia, is only a five hours’ drive by freeway to the southeast.

 

Moreover, Yamana Gold Ltd., a TSX Brazilian success story, is commissioning the Chapada Copper and Gold mine, just 32 kilometres south of Mara Rosa, adding further to the local mining infrastructure.

 

Of additional note is the fact that CVRD, and Anglo American – two mining giants – have stake all the ground surrounding Amarillo’s holdings.

 

Amarillo Moves to Acquire the Advanced-Stage Lavras Do Sol Gold Project

Amarillo very recently entered into an agreement with Rio Tinto Desenvolvimentos Minerais Ltd. to obtain up to a 100% interest in the highly prospective Lavras do Sul Gold Project in Brazil. The project area covers a total of 9,122 hectares and encompasses two historic, under-developed deposits. They are located in the state of Rio Grande do Sul approximately 350 kilometres by paved road southwest of the state capital, Porto Alegre.

 

The Brazilian division of Rio Tinto (one of the world’s pre-eminent mining heavyweights) has been aggressively exploring this property in recent years in the search for a 10-million-ounce gold deposit. However, Rio Tinto has arrived at the conclusion that a world-class gold find of this magnitude is unlikely to present itself.

 

Hence, Amarillo has been invited to earn-in on the project. This is based on Rio Tinto’s hypothesis that a much more realistic opportunity exists to unearth a much more modest (yet sizeable) bulk tonnage deposit. This is interpreted by SmallCapMedia to mean a deposit of up to three million ounces of gold.

 

To date, Rio Tinto’s drilling efforts have focused on two distinct discovery areas, namely the Butia and Cerrito deposits. Both are situated within five kilometres of the town of Lavras do Sul and are covered with old surface workings, including open pit excavations. There has also been previous drilling by a local mining company. In fact, these prospects have actually experienced intermittent gold production since the late 1800’s.

 

Between Rio Tinto and the previous property owner, a total of 46 holes have been drilled in recent years. Highlights at Butia include 175 metres of 0.75 g/t gold, 181 metres of 0.87 g/t gold, 104 metres of 1.03 g/t gold and 184 metres of 0.93 g/t gold. At the Cerrito deposit, highlights include 65 metres of 1.05 g/t gold, 90 metres of 0.78 g/t gold, 101 metres of 1.15 g/t gold and 71 metres of 1.08 g/t gold.

 

The mineralization at both prospects is ‘open’ (continuous) in a number of directions. And there are numerous other alteration zones that will be investigated by way of geophysical surveying, as well as extensive soil sampling. All of this attests to the property’s overall potential for further bulk-tonnage gold accumulations with similar grades to the known drill-indicated mineralization.

 

Many of these new prospects show evidence of surface gold diggings from the 1930’s but still remain untested by modern exploration. Similarly, a number of geophysical and geochemical anomalies exist elsewhere within the Company’s various claim blocks that also offer plenty of encouragement.

 

Hence, Amarillo intends to conduct further definition drilling of the Butia and Cerrito deposits which will be incorporated into a NI 43-101 compliant resource calculation for each deposit. Amarillo also intends to undertake controlled drilling of the near-surface oxidized mineralization to determine the potential for a viable heap leach mining operation which may be fast-tracked into production.

 

Amarillo must make total payments of US $2.07 million through various installments up to April 1, 2008, in order to acquire an initial 60% interest in the property. But if Rio Tinto elects not to contribute its share of development costs, then Amarillo stands to earn a 100% interest in the property.

 

A net smelter royalty of 1.5% would then be payable on production. Additionally, Amarillo is obliged to make a US $1 million payment to Rio Tinto within 90 days of a bankable feasibility study (a detailed blueprint for a mine) being delivered.

 

Vision, Pragmatism and a Proven Track Record are Potent Catalysts for Success

All of the previously outlined value drivers offer a strategically sound springboard to success. To recap, the Company’s core strength involves building its business model on the development and expansion of known gold deposits with easily accessible and inexpensively mineable resources. And Amarillo is also primed for such success in one of the most cost-efficient gold mining business environments anywhere in the world.  

 

This pragmatic approach stands in stark contrast to the legions of other mining juniors that are hell-bent on making brand new discoveries among some of the world’s last (and most remote) frontier gold territories. All so that they can tantalize their shareholders with nothing less than a shot at a huge world-class gold find – thereby turning the odds of success into lottery-like gambles.

Conversely, Amarillo’s vision for exponential, yet manageable growth is based on a clear understanding of the scope of company-building potential that a nation like Brazil has to offer such an intrepid resource junior. This is because Amarillo’s directors and senior management have enjoyed considerable past success in Brazil and also know first-hand that Latin America’s largest nation has the potential to become a global gold producing powerhouse.

Capitalizing on an Unprecedented Geopolitical Opportunity

Brazil has had far less exploration than many other countries, particularly Canada and Australia, but also other Latin Countries such as Chile and Peru. Favourable geology, political stability, a huge, under-explored land mass, and a pro-mining regulatory climate (first reformed in 1996) make Brazil an increasingly desirable part of the world to explore for sizeable gold deposits.

That is one of the reasons why the U.S.-based Institute of International Finance declared earlier this year that: “Brazil is the most investor-friendly emerging market in the world.”

To date, there is less than two dozen enterprising Canadian mining juniors that are believed to be active in the world’s fifth largest nation – several of which are already enjoying success with producing mines, while the others are making impressive strides.

Strong Management is Always the Key Ingredient for a Winning Formula

SmallCapMedia is particularly mindful of the fact that Amarillo’s shrewd strategy is a reflection of the pedigree and depth of experience of the Company’s accomplished management team. Collectively, they benefit from decades of multi-disciplinary experience in the mining industry. And Amarillo’s management is both technically strong and well-rounded. To this end, the Company’s shareholders are being well-served.

The Company is led by Chief Executive Officer, Buddy Doyle, who has nearly a quarter of a century’s experience in mineral exploration. Until three years ago, he was Exploration Manager/Vice President of Kennecott Canada Exploration Inc. and was in charge of diamond exploration in North America.

Previous career highlights include being a key member of the Kennecott Exploration Australia team that discovered the multi-million-ounce Minifie gold deposits in 1987-1988. Buddy moved to Canada with Kennecott Exploration in 1992 and led the team that discovered the $3 billion Diavik diamond deposits in 1994-1995.

Investment Summary                               

From a structural perspective, Amarillo has approximately 30.1 million shares outstanding (about 33 million fully diluted). Such a relatively tight share structure, matched with positive news flow, typically acts as a potent catalyst for higher share price multiples.

 

And the stage has surely been set for such a news-driven breakout thanks to recent developments. That being said, Amarillo is still trading within a very affordable range. This situation reflects a fast-emerging story that has yet to show up on the radar screens of most of the resource-oriented investment community.  

 

On a final note, astute readers will therefore appreciate that Amarillo’s management has the vision, the drive, the geological expertise and experience, as well as the financial backing, to fully maximize Amarillo’s opportunities for one or more ‘home run’ discoveries. This ideal scenario already appears to be unfolding. Thus, SmallCapMedia therefore expects Amarillo to be a strong performer over the next 18 months and beyond.