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Timmins Gold fights for Capital Gold; makes final plea to reconsider merger over Gammon proposal

Last updated: 19:19 03 Dec 2010 GMT, First published: 20:19 03 Dec 2010 GMT

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The fight for Mexico-focused gold producer Capital Gold  (AMEX/TSX: CGC) is not over. Timmins Gold Corp (TSX-V: TMM) has today issued a letter to Capital's board of directors in the company's last swinging attempt to persuade the board to reconsider its merger proposal instead of accepting Gammon Gold's (NYSE: GRS, TSX: GAM) offer, due to close by year-end.

Despite the fact Timmins' US$4.48-per-share offer has been rejected twice already, in a statement issued today, Timmins' CEO Bruce Bragagnolo wrote a detailed letter on the merits of its bid to acquire Capital Gold, stating that the proposal "clearly delivers both greater short-term and long-term value to Capital Gold shareholders compared to the Gammon offer".

Both Timmins and Gammon are eager to merge with Capital Gold, as the combination would consolidate and enhance each of the respective companies' positions as a Mexico-focused gold producer. Capital Gold owns the producing El Chanate gold property in Sonora, located 65km from Timmins' San Francisco mine. El Chanate has transformed from a small exploration property to a low cost, producer with upside potential, increasing reserves by 1.3 million gold ounces (535%) since 2002.

The letter by Timmins argues each of the reasons Capital Gold rejected its original offer in September and again in October, including Timmins' cash position, the "small upfront premium" and shareholder approval requirements.

Under Timmins' revised offer, each share of Capital Gold common stock would be exchanged for 2.27 common shares of Timmins. Based on the average of the respective closing share prices for the last 20 trading days, Timmins Gold's proposal has a value of US$4.48 per Capital Gold share, exceeding the value of the Gammon agreement by US$0.22, Timmins said.

Capital was trading at $4.69 as of 10:05 am EST on Friday.

In the letter, Bragagnolo advised that the Timmins offer would impose "far less onoerous terms" on Capital Gold than the agreement with Gammon, including a significantly reduced termination fee, the elimination of matching rights and Gammon's "unusual" $2.0 million termination right.

"The proposed transaction is strategically compelling and a superb opportunity to create value for our respective shareholders," said Bragagnolo.

"Combining Capital Gold and Timmins Gold will create a solid mid-tier gold producer, with production of approximately 180,000 ounces of gold per year and estimated reserves of approximately 2.2 million ounces of gold, which we believe will generate a unique re-rating opportunity that will benefit Capital Gold and Timmins Gold shareholders alike."

Bragagnolo went on to explain that Capital Gold's shares have rallied to trade above the Gammon offer price, which Timmins believes is "clearly" representative of the market prefering its offer.

He added: "We urge the Capital Gold Board to review our proposal carefully. We are confident that when they do so they will recognize that our proposal is superior to the Gammon offer...this will be our final request to their Board."

Timmins also said that more than 35% of Capital Gold's shareholders are in favour of the the two companies merging, including some of Capital's largest institutional investors. Timmins was up 0.95% on Friday, trading at $2.12 as of 10am EST.

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