Farallon Announces Second Quarter Financial and Operating Results - Record
Production Performance Continues

26m lb of Zinc Produced at a Total Cash Cost(1) of $0.05/lb payable zinc

VANCOUVER, Aug. 11 /CNW/ - Farallon Mining Ltd. ("Farallon" or the "Company") (TSX:FAN) announces its financial and operating results for the three months ended June 30, 2010. Currency amounts are stated in United States Dollars, unless otherwise noted. This news release should be read in conjunction with the Company's financial statements and MD&A which are available on SEDAR and the Company's website.

The Company's G-9 mine produced a record 26.3 million pounds of zinc and 2.3 million pounds of copper in concentrates at a total cash cost(1) of $0.05/lb of payable zinc, generating operating earnings of $11.3 million and $6.6 million in cash from operations before changes in non-cash working capital.

"The G-9 mine has continued the trend of increasing production on a quarterly basis, and is now achieving its operating cost targets," said President and CEO Dick Whittington. "Production increased 10% from 1,650 tpd in the first quarter to 1,816 tpd in the second quarter, or 21% above the design throughput of 1,500 tpd. At the same time, unit production costs declined 17% from $77/t milled to $64/t milled. As a result, the G-9 mine is now one of the lowest cost zinc mines in the world on a total cash cost(1) basis at $0.05/lb of paid zinc. Operationally, our focus is improving the mine output while, corporately, we continue to seek business combinations that will allow us to deliver on our objective of becoming a mid-tier, multi-mine company."

A summary of the results for the three months ended June 30, 2010 ("Q2") compared to the three months ended March 31, 2010 ("Q1") are as follows:


    -  Operating earnings of $11.3 million, up from $9.1 million in Q1.

    -  Net earnings in Q2 were impacted by a non-cash charge of $2.1 million
       for stock-based compensation related to the Company's annual stock
       option grant, an unrealized foreign exchange loss of $2.0 million and
       a $1.1 million non-cash loss on the deemed extinguishment of long-term
       debt arising from long-term debt restructuring. As a result, net
       earnings were $2.0 million, down from $6.2 million in Q1.

    -  Cash flow from operations before changes in non-cash working capital
       of $6.6 million, up from $6.0 million in Q1.

    -  Gross revenues of $39.1 million, up from $37.6 million in Q1.

    -  Non-GAAP Adjusted EBITDA(1) of $11.4 million, up from $9.0 million
       in Q1.

    -  Working capital of $24.4 million at June 30, 2010, up from
       $18.2 million at March 31, 2010.

During Q2, the Company restructured its long-term debt facility with Credit Suisse. As part of the restructuring, the facility was expanded and drawn to $36 million from $30 million and repayment terms were extended to 48 months from 36 months. The fixed interest rate was lowered from 6.97% to 6.62%. Principal repayments began in July 2010 and will continue monthly until June 2014, unless repaid earlier. As a result, the Company's annual interest and debt expenses have been reduced.


    -  Unit operating costs of $64/tonne milled, down from $77/tonne milled
       in Q1.

    -  Total cash cost per payable pound of zinc(1) of $0.05/lb down from
       $0.36/lb in Q1.


    -  Processed 165,244 tonnes of ore (average throughput 1,816 tonnes per
       day "tpd" or 21% above the design throughput of 1,500 tpd) grading
       8.7% zinc, 0.9% copper, 222 g/t silver and 2.7 g/t gold.

    -  Produced 25,342 tonnes of zinc concentrate and 9,011 tonnes of copper
       concentrate, containing an estimated 26.3 million pounds of zinc,
       2.3 million pounds of copper, 595,309 ounces of silver and
       6,722 ounces of gold from the G-9 mine.

    -  Recovered 82% zinc, 68% copper, 53% silver and 41% gold from ore into
       zinc and copper concentrates.

    -  Sold approximately 25,388 tonnes of zinc concentrate grading 48% zinc
       and 10,433 tonnes of copper concentrate grading 11.4% copper. Payable
       metals contained in concentrate were 22.3 million pounds of zinc,
       2.4 million pounds of copper, 478,825 ounces of silver and
       4,243 ounces of gold.

    Metal Prices

    -  Realized sales prices for zinc and copper were of $0.89/lb and
       $3.11/lb, respectively, down from Q1 realized prices of $0.99/lb zinc
       and $3.23/lb copper.

The net effect of the 10% decline in zinc price and the 4% decline in copper price was estimated to be $2.5 million in cash flow from operations before changes in non-cash working capital.

    Expansion Project

In November 2009, Company's Board of Directors approved a project to expand the existing operations from 1,500 tpd to 2,000 tpd. Axxent Engineering was engaged to provide engineering, procurement and construction management services for the mill portion of the project and key pieces of equipment were procured, including additional regrind mills and rougher flotation cells.

The mill portion of the expansion was suspended during the period as it is apparent that the mill is capable of processing greater than 2,000 tpd without any additional equipment installation. The capital budget allocated to the mill has been re-allocated to the mining operations to improve ore output from the mine. A review of the mill capacity has concluded that the mill is likely capable of producing at a steady-state operation of 2,300 tpd without any significant additional capital expenditures.


At year-end 2009, the Company announced its objective to be operating at 1,500 tpd for the first six months of 2010 and then increase to 2,000 tpd by July 1, 2010. During the first half of 2010, throughput actually averaged 1,750 tpd and, as such, the Company is well ahead of its objectives as of July 1, 2010. However, management now believes that it is appropriate to express caution regarding whether the mining operations will be able to deliver the planned quantity of ore on a regular basis until underground development and capital projects are completed in the latter half of 2010. Accordingly, the Company is reducing throughput rates to 1,500 tpd during the third quarter of 2010 at which time ramp-up to 2,000 tpd will be further evaluated.

    Management Changes

The Company is pleased to announce the hiring of Mr. Kerry Barker as the new General Manager of G-9. Kerry is a Geological and Mining Engineer with over 15 years of worldwide industry experience. Kerry obtained his B.Sc. in Geological Engineering, his B.Sc in Mining Engineering and his Masters of Science in Mining Engineering from the University of Utah in Salt Lake City. He was most recently Mining Manager of the Palmarejo Operations for Coeur d'Alene Mines in Mexico. He was also previously Operations Manager at Freeport-McMoRan Copper & Gold.

Kevin Weston, Chief Operating Officer, has resigned and, effective August 17, will be leaving the organization.

"Kevin has made a significant contribution to the Company over the last year, particularly in the areas of safety and mill performance. We thank him for his contributions and wish him the best in his future endeavors. Farallon is a different Company today from when Kevin joined us a year ago," said Dick Whittington. "Kerry is a tremendous addition and offers a wealth of knowledge and experience to the Farallon senior management team, particularly in the area of underground mining. The Company looks forward to supporting Kerry as he brings steady state operations to G-9."

    Gold Project Development

During the period, the Company announced the initiation of a formal engineering study on the original deposits at Campo Morado - El Largo, Reforma, Naranjo and El Rey. It is the Company's intention to present the results of this work as a Pre-Feasibility Study ("PFS") by July 1, 2011. Since the announcement of the scope of work on July 6, the Company has engaged Melis Engineering to perform metallurgical test work, Stephen Godden as a primary mining consultant and AMC Consultants to deliver the PFS, including signing off on Mineral Reserves. Knight Piesold Consulting of Vancouver, BC will address the environmental aspects of the study including tailings, waste rock and water management. The project manager for the PFS will be Dr. David Stone, P.Eng., of Hunter Dickinson Services Inc.

Dick Whittington said "The completion of a PFS on the historical deposits at Campo Morado is the first step in unlocking shareholder value from the nearly 1 million ounce of contained gold and 60 million ounce of contained silver in these resources(2) with the objective of having a second mine in operation at Campo Morado by July 1, 2013."


The Company issued an update on exploration activities in a separate news release dated August 10, 2010.

    Conference Call

Farallon will hold a conference call tomorrow, Thursday August 12, at 8:00 am Pacific time (11:00 am Eastern) to discuss these results. The call can be accessed at (647) 427-7450 or toll-free at (888) 231-8191. A live webcast will also be available at www.farallonmining.com.

    Tables of Production and Summary Financial Statements

    Production                                 Q2 2010    Q1 2010   YTD 2010
    Metals (contained in concentrate)
    Zinc (000's Pounds)                         26,272     24,950     51,222
    Copper (000's pounds)                        2,261      2,139      4,400
    Silver (ounces)                            595,309    420,911  1,016,220
    Gold (ounces)                                6,722      4,322     11,044

    Ore Mined (tonnes)                         155,043    154,580    309,623
    Ore Processed (tonnes)                     165,244    152,178    317,422
    tonnes per day                               1,816      1,691      1,754
    Zinc grade (%)                                 8.7        9.1        8.9
    Copper grade (%)                               0.9        1.1        1.0
    Silver grade (%)                               222        174        199
    Gold grade (%)                                 2.7        2.5        2.6

    Zinc (DMT)                                  25,342     23,365     48,707
    Zinc (%)                                      47.0       48.4       47.7
    Silver (g/t)                                   312        290        302
    Gold (g/t)                                     2.7        2.3        2.5
    Copper (DMT)                                 9,011      6,952     15,963
    Copper (%)                                    11.4       14.0       12.5
    Silver (g/t)                                 1,175        909      1,059
    Gold (g/t)                                    15.5       11.6       13.8

    Recovery                                   Q2 2010    Q1 2010   YTD 2010
    Zinc (%)                                        82         82         82
    Copper (%)                                      68         59         63
    Silver (%)                                      53         49         51
    Gold (%)                                        41         39         40

    Costs                                      Q2 2010    Q1 2010   YTD 2010
    Site Costs (US$/t milled)                   $64.34     $76.74     $70.29
    Total Cash Costs (US$/payable lb zinc)(1)    $0.05      $0.36      $0.21

    Summary of Consolidated Balance Sheets (USD '000s)

                                             30-Jun-10  31-Mar-10  31-Dec-09
      Cash and equivalents                      28,540     20,900     21,574
      Other Current Assets                      16,580     19,680     17,744
    Current Assets                              45,120     40,580     39,318

    Property, Plant and Equipment              124,596    125,832    127,530
    TOTAL ASSETS                               169,716    166,412    166,848

    Liabilities and Shareholders' Equity
      Accounts payable and accrued liabilities  11,622     14,564     15,428
      Other Current Liabilities                  9,059      7,778      9,007
    Current liabilities                         20,681     22,342     24,435

      Long term debt (Credit Suisse)            27,000     21,900     24,319
      Silver Wheaton deferred revenue           67,682     72,037     74,499
      Site closure and reclamation obligation      604        583        561
    Long term liabilities                      115,967    116,862    123,814

    Shareholders' equity                        53,749     49,550     43,034

    TOTAL LIABILITIES & EQUITY                 169,716    166,412    166,848

    Working Capital                             24,439     18,238     14,883

    Summary of Consolidated Statements of Operations and Comprehensive Loss
    (USD '000s)

                                                    Q2         Q1         Q4
                                                  2010       2010       2009
    Gross Sales Revenue                         39,053     37,595     32,343
    Cost of Sales                              (24,116)   (25,457)   (25,142)
    Depreciation, depletion, amortization
     and accretion                              (3,607)    (3,018)    (3,244)
    Earnings (loss) from operations             11,330      9,120      3,957

      Exploration                                1,063      1,443        599
      Office Costs                               2,467      1,675      2,058
      Other Expenses (income)                    5,817       (241)     1,182
    Expenses (income)                            9,347      2,877      3,839
    Current income tax (recovery) expense           17         41         74
    Net Earnings (loss)                          1,966      6,202         44

    Net Earnings (loss)                          1,966      6,202         44
    Depreciation, depletion and amortization     3,586      2,996      3,262
    Accretion of reclamation obligation             21         22        (18)
    Interest Expense                               610        605        569
    Loss on extinguishment of long-term debt     1,133
    Interest Income                                (11)       (14)        (8)
    Current income tax (recovery) expense           17         41         74
    Standard EBITDA                              7,322      9,852      3,923
    Unrealized foreign exchange (gain) loss      2,021     (1,100)       258
    Stock based compensation                     2,064        268        363
    Non-GAAP Adjusted EBITDA                    11,407      9,020      4,544

    Summary of Consolidated Statement of Cash Flows (USD 000's)

                                                    Q2         Q1         Q4
                                                  2010       2010       2009
    Earnings (loss) for the period               1,966      6,202         44
    Amortization of Deferred Revenue            (4,355)    (2,462)    (2,304)
    Items not involving cash                     8,988      2,267      4,511
    Cash Flow from Operations before
     changes in non-cash working capital         6,599      6,007      2,251
    Changes in non-cash working capital            852     (6,529)     2,156
    Cash Flow from (used in) Operations          7,451       (522)     4,407

    Investing Activity - Additions to
     Property Plant Equipment                   (2,350)    (1,298)    (1,919)
    Financing Activity                           4,560         46      9,894
    Foreign Exchange Gain (loss)                (2,021)     1,100     (1,854)
    Increase (Decrease) in cash and equivalents  7,640       (674)    10,528

    Cash and equivalents, beginning of period   20,900     21,574     11,046
    Cash and equivalents, end of period         28,540     20,900     21,574

Farallon operates the G-9 zinc mine on its Campo Morado Property in Guerrero State, Mexico. G-9 is a 1,500 tonnes per day, underground zinc mine with important by-product credits of copper, gold, and silver. G-9 has total cash costs(1) amongst the lowest of zinc producers worldwide. The Company is targeting to produce at an annualized production rate of 120 million pounds of zinc and 15 million pounds of copper per year.

    J.R.H. (Dick) Whittington, President & CEO

    (1) Total Cash Costs and Adjusted EBITDA are Non-GAAP Financial Measures.
        Please read page 8 of the Company's MD&A for further information.
    (2) Indicated resources of 11.209 million tonnes grading 4.66% Zn,
        0.67% Cu, 1.44 % Pb, 2.67 g/t Au and 165 g/t Ag at a $90 GMV/t cutoff
        using metal prices of US$0.51/lb for Zn; $1.00/lb for Cu; US$0.25/lb
        for Pb; US$375/oz for Au and US$5.50/oz for Ag. Further information
        is included in the Company's June 29, 2010 news release.

No regulatory authority has approved or disapproved the information contained in this news release

Forward Looking Information

This news release includes certain statements that may be deemed "forward-looking statements." All statements in this release, other than statements of historical facts, that address future production, reserve or resource potential, continuity of mineralization, exploration drilling, operational activities, production rates, costs to completion and events or developments that the Company expects, or is targeting, are forward-looking statements. Although the Company believes that the expectations expressed in such forward looking statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially from those in the forward looking statements and may require achievement of a number of operational, technical, economic, financial and legal objectives. The likelihood of continued future mining at Campo Morado is subject to a large number of risks, including obtaining lower than expected grades and quantities of mineralization and resources, lower than expected mill recovery rates and mining rates, changes in and the effect of government policies with respect to mineral exploration and exploitation, the possibility of local disputes including blockades of the company's property and/or labor disputes, the possibility of adverse developments in the financial markets generally, fluctuations in the prices of zinc, gold, silver, copper and lead, obtaining additional mining and construction permits, preparation of all necessary engineering for ongoing underground and processing facilities as well as receipt of additional financing to fund mine construction, development and operation, if needed. Such funding may not be available to the Company on acceptable terms or on any terms at all. For more information on the Company and the risk factors inherent in its business, investors should review the Company's Annual Information Form at www.sedar.com.

Information Concerning Estimates of Indicated Resources

This news release uses the term "indicated resources". Farallon advises investors that although these terms are recognized and required by Canadian regulations (under National Instrument 43-101 Standards of Disclosure for Mineral Projects), the U.S. Securities and Exchange Commission does not recognize them. Investors are cautioned not to assume that any part or all of the mineral deposits in this category will ever be converted into reserves.

SOURCE Farallon Mining Ltd.

For further information: For further information: on Farallon, please visit the Company's website at www.farallonmining.com or contact Neil MacRae, Investor Relations Manager, at (604) 638-2160 or within North America at 1-877-688-2050

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