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Gammon Gold posts record first-quarter production

Gammon Gold CEO Rene Marion

Gammon Gold Inc. says it is poised for "peer-leading" growth in 2011 after starting its fiscal year with record production, margins and cash flow.

The gold and silver mining company expects to produce 255,000 to 290,000 gold equivalent ounces at a total cash costs of $455 (U.S.) to $485 per gold equivalent ounce in 2011, assuming a gold equivalency ratio of 55 to 1.

The forecast includes 205,000 to 230,000 gold equivalent ounces, or 117,000 to 134,000 ounces of production from its Ocampo and El Cubo mines. The rest comes from its share of the production from newly acquired Capital Gold's El Chanate mine.

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Gammon also expects to produce 4.84 million to 5.56 million ounces of silver.

During the first quarter, it posted record underground production, record margins, a record $50-million operating cash flow and a record $24-million net free cash flow.

It held $119-million of cash as of March 31.

Its produced nearly 26,000 ounces of gold and one million ounces of silver from the Ocampo mine during the quarter. The gold translated into 50,000 gold equivalent ounces during the quarter at a $383 cash cost, for a record $1,002 margin or 72 per cent for each ounce.

Underground mining at the El Cubo mine will begin in the coming days, with processing starting in the third quarter. It also completed the acquisition of Capital Gold as of Friday.

"With El Cubo re-commissioning ahead of schedule and the Capital Gold acquisition complete, the company is well positioned for growth in 2011 and beyond," chief executive officer Rene Marion.

Brian Christie of Desjardins Securities said Gammon's 2011 guidance was mostly in line with expectations in terms of production but higher than his forecast on costs.

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"We view the higher-than-expected cash cost guidance as negative, offset by the closing of the accretive Capital Gold transaction, resulting in our overall neutral assessment of [Monday's]news," he wrote in a report.

The mid-tier gold and silver producer has three 100-per-cent owned operating mines and two advanced development projects in Mexico that it said will ensure its growth targets in 2011 and beyond.

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