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Lone Star Gold to acquire 65% stake in Mexican tailings facility

Lone Star Gold to acquire 65% stake in Mexican tailings facility

Lone Star Gold (OTCBB:LSTG) late Tuesday signed a definitive agreement to acquire a 65 percent interest in a tailings facility located in the city of Hidalgo Del Parral, in the state of Chihuahua, Mexico.

According to the current owners, the facility represents a resource of about 1.2 million tons of mine tailings, which show potential for silver recovery and additional bi-products such as gold, zinc, and lead.

The company had originally signed a letter of intent to purchase the undivided 65 percent interest in late November 2011. Following the company's due diligence, which included positive results from 40 undisturbed samples, Lone Star opted to move forward with the deal.

The definitive agreement will be signed by the company's president, Daniel Ferris, in mid-January, during his upcoming visit to Chihuahua, Mexico.

Ferris commented: "From the moment we first identified this opportunity it was clearly an ideal fit with our goal of rapidly becoming a mid-tier producer in the short term.

"Once we've signed the Definitive Agreement in mid-January, we'll effectively be in the position of potentially beginning 6-8 years of production as soon as February 2012."

Under the terms of the agreement, Lone Star will issue a total of 600,000 shares of its common stock over a one-year period, upon signing of the agreement. The deal also outlines up to $1.55 million in cash commitments over the first two years for initial and secondary project work, including equipment and plant construction.

Lone Star said that it plans to form a Mexican subsidiary, which will hold the 65 percent interest in the tailings project. Once the 1.2 million tons of mine tailings have been processed, the company will forfeit its interest in the Mexican company, including the plant and the equipment.

The initial stage of the tailings project will see Lone Star move 100 tons per day (tpd) in tailings to a processing plant in Parral for the first four to six months, starting next month. After that, throughput will be increased to about 200 tpd for the next six to 12 months.

The secondary stage of the project will see the construction of a heap leach pad and possibly a float plant. The expected maximum cost for both these projects would be about $1.5 million.

The plant, which would take between four and six months to construct, is expected to boost capacity to between 200 and 300 tpd, before ramping up to about 600 tpd after the first six months. This onsite plant is expected to liberate over 85 percent of the resources in the tailings pile, Lone Star said.

Based in Albuquerque, New Mexico, Lone Star has a 70 percent working interest in the La Candelaria project, located to the west of the tailings facility, as well as an option to purchase a 70 percent interest in the Ocampo project, located to the northwest of the tailings facility.

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