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Lachlan Star Passes 2moz Indicated Resource At The CMD Gold Mine In Chile

Unhedged gold producer Lachlan Star (ASX: LSA, TSX: LSA) has achieved yet another milestone at the CMD Mine in Chile with Indicated Resources passing 2 million gold ounces.

Total contained gold has increased by 500% in two years.

The mine now hosts 3.4 million gold ounces (2.058 million ounces Indicated and 1.354 million ounces Inferred).

Mick McMullen, chairman of Lachlan Star, commented on the achievement: "We are pleased to report that over the course of less than two years, our team has managed to deliver in excess of 500% growth in contained gold within the CMD Gold Mine's mineral resource."

Significant potential exists to expand the mineral resources at the mine, in particular at the Tres Perlas deposit - which is open down dip and towards the north east around the El Sauce area.

The new Tres Perlas deposit contains an Indicated 1.602 million gold ounces and a further Inferred 1.138 million gold ounces. The increase in contained ounces has come from a slight increase in average grade (4%) and additional near surface tonnages identified by drilling around the Mercedes Hill area on the edge of the Churrumata pit.

Lachlan Star commenced mining of the Mercedes Hill area in September, which is expected to provide low waste to or ratio material from the December quarter 2012 onwards.

Mineral resource growth potential

The majority of the increase in the mineral resources to date has been as a result of infill drilling between and along strike of historical pits.

There is the potential to increase mineral resources at depth by further drilling which would be amenable to mineral processing through the current sulphide heap leach circuit.

The CMD Gold Mine processes ore via a three stage crush and heap leach circuit that has been treating predominately sulphide ore since 1995. Recoveries have averaged around 73% until the introduction of the dynamic leach system in 2011, after which recoveries have increased to around 75%.

New equipment to drive efficiencies

Just last week Lachlan Star received the first of a series of new equipment, which will allow the operation to reduce the reliance on mining contractors, driving efficiency and through-put, while also reducing costs.

Over the next three months Lachlan Star will take ownership of a mining fleet consisting of seven HD785 (100 tonne) trucks, two WA900 loaders and ancillary support equipment, along with a dynamic pad fleet consisting of seven Mercedes Benz road trucks to be utilised in moving material between the primary and secondary leach pads.

Analysis

Lachlan Star recently expanded the dynamic leach pad space which will allow an increase in ore stacked to more than 450kt per month (from around 350kt per month).

This will allow the operation to leach around 65% of the contained gold in around four months on the primary leach before the ore being moved to the secondary leach for recovery of an additional 10% of contained gold.

The outcome will help Lachlan Star to increase gold production by 50% in the next nine months, from the current 50,000 ounces per annum run rate to 75,000 ounces per annum by the end of the June quarter 2013.

The increased production has the potential to deliver Lachlan Star with increased gross revenues of around US$44 million (25,000 ounces by US$1770 spot gold price) based on current levels.

Lachlan Star has a market cap. of around $118 million, along with a strong balance sheet including US$13 million in cash and gold receivables, with an EV/resource of around $30 an ounce (based on 3.4 million ounces).

Now with production ramping up in the short term and the company's production unhedged, enables a greater proportion of revenues to be booked as profits.

CMD already hosts 3.4 million gold ounces (2.058 million Indicated and 1.354 million Inferred) - while there remains potential to significantly expand the current resources.

Combined with a higher production profile and EV/Resource ranking under its peers, we believe that Lachlan Star's share price of $1.34 has significant potential to move rapidly higher as it appears to be under the radar of some Australian investors. Given the project location, it is less likely to be under the radar of North American investors for too much longer.

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