Farallon Announces Third Quarter Operating and Financial Results

Mill Expansion Project at G-9 Underway

VANCOUVER, Nov. 16 /CNW/ - Dick Whittington, President and CEO of Farallon Mining Ltd. ("Farallon" or the "Company") (TSX:FAN) is pleased to announce the quarterly operating and financial results for the Company for the three months ending September 30, 2009 and to provide a G-9 mill update.

This news release should be read in conjunction with the Company's financial statements and MD&A, which are available on SEDAR. Currency is United States dollars unless otherwise indicated. Farallon will hold a conference call tomorrow, Tuesday November 17th, at 8:00 am Pacific time (11:00 am Eastern) to discuss these results. Call-in details are provided at the end of this release.

The Company generated cash flow from operations of $0.3 million and a loss for the period of $0.6 million. Production included zinc contained in zinc concentrates of 22.1 million pounds, copper in copper concentrate of 1.8 million pounds and additional by-product silver and gold. The total cash cost(1) including transportation, treatment and refining charges and by-product credits, was $0.45/lb of payable zinc.

In addition, the Company's Board of Directors has approved capital expenditure of $5.3 million to proceed with a mill expansion to increase production at the G-9 mine from 1,500 tonnes per day ("tpd") to 2,000 tpd. The Company has engaged Axxent Engineering for engineering, procurement and construction management services related to the project which is expected to be complete by July 2010.

President and CEO Dick Whittington said "The third quarter was an exciting period for the Company in which underground development activity at the mining operations at G-9 were completed. We are now producing high-grade ore at over 1,500 tpd on a consistent basis. As well, many initiatives were undertaken in the milling operations that allowed us to exceed our design throughput rates in the mill during the month of October, operating at an average rate of 1,600 tpd. These initiatives have us well placed to capitalize on strong base metal prices during the fourth quarter, and the initiation of the mill expansion project will further enhance our position as a low-cost zinc producer. We are also very enthusiastic about the resumption of exploration drilling on the property".

Financial and operational highlights for the three months ended September 30, 2009 ("Q3" or "the period") compared to the three months ended June 30, 2009 ("Q2") are as follows:

    -   Loss of $0.6 million, down from a loss of $8.0 million for Q2.
    -   Cash flow from operations of $0.3 million, up from cash used of $0.4
        million in Q2.
    -   Gross profit of $2.9 million, down from $5.7 million in Q2.
    -   Production of 20,462 tonnes of zinc concentrate and 4,894 tonnes of
        copper concentrate containing an estimated 22.1 million pounds of
        zinc, 1.8 million pounds of copper, 301,202 ounces of silver and
        3,355 ounces of gold from the G-9 mine. Zinc and copper production
        was up from 21.3 million pounds and 1.7 million pounds, respectively,
        in Q2.
    -   Processed 117,318 tonnes of ore with a grade of 10.8% zinc, 1.5%
        copper, 203 g/t silver and 2.7 g/t gold. Production was up from
        114,644 tonnes of ore in Q2.
    -   Sold approximately 27,004 dry metric tonnes of zinc concentrate
        averaging 51% zinc, 5,947 dry metric tonnes of copper concentrate
        averaging 15% copper and 2,234 tonnes of lead concentrate averaging
        20% lead. Sales were up from 25,750 tonnes of zinc concentrate, 2,310
        tonnes of copper concentrate and zero lead concentrate in Q2.

Subsequent to the quarter end, the Company:

    -   Exceeded design throughput rates in the mill during the month of
        October, processing approximately 49,600 tonnes of ore (1,600 tpd or
        107% of design).
    -   Closed a bought-deal equity financing with net proceeds of
        approximately $10.2 million, increasing cash on-hand to approximately
        $22.5 million as at November 1, 2009.
    -   Initiated a Mill Expansion Project to 2,000 tpd with anticipated
        capital cost of $5.3 million and completion by July 2010.
    -   Re-started exploration drilling at Campo Morado with two surface
        drills and one underground drill operational.

    G-9 Operations

During the period, mining continued in the high-grade Southeast zone as well as the North zone and West Extension. Development activity was completed in the Southeast zone opening up access to the area from the south and the east and there are currently thirteen open mining faces at G-9, nine of which are in the Southeast zone. As well, an ore pass was completed at the end of the quarter, significantly improving the efficiency of ore hauling from the Southeast zone to the mill. Cemented rock backfilling was initiated during the period in the lower portion of the North zone to allow for mining of high-grade pillars.

In the mill, the design capacity of 1,500 tonnes per day was achieved for extended periods of time during Q3. However, mill availability was lower than design leading to production rates averaging 1,270 tonnes per day, compared to 1,260 tonnes per day in Q2. At the same time, enhanced maintenance programs were implemented in the quarter and various capital projects were undertaken to improve availability and throughput. As a result, during the month of October 2009, the mill processed approximately 49,600 tonnes of ore or an average of 1,600 tonnes per day (107% of design).

Metallurgy continues to be a key focus for the operations. As a result, zinc recovery has improved to 79% in Q3 from 77% in Q2. This trend has continued into the fourth quarter with average zinc recovery of 83% during the month of October. Copper recovery was 46% in Q3, down from 55% in Q2; however, continued improvements were observed into the fourth quarter with an average copper recovery of 55% in October. During the third quarter, the Company did not produce lead concentrate and continued not to do so into the fourth quarter.

During the period, the Company formed a Technical Support Team to assist in improving metallurgical recovery in the milling operations. The team includes 24 hour metallurgical coverage at the mill site as well as off-site metallurgical test work support. Continued enhancements are expected to improve zinc and copper recovery to 85% and 75%, respectively, during the fourth quarter. Changes to mill management have also strengthened mill operating performance.

    Month                                        Recovery (%)
                                 Zinc        Copper      Silver       Gold
    July                           77          40          35          39
    August                         80          45          35          29
    September                      79          52          47          33
    October                        83          55          47          31

Key operating and sales metrics for the three and nine months ended September 30, 2009 are shown in the attached table.

    Mill Expansion Project

The Company's Board of Directors has approved a project to expand the existing milling operations from 1,500 tpd to 2,000 tpd. Axxent Engineering has been engaged to provide engineering, procurement and construction management services for the project. Capital cost is anticipated to be approximately $5.3 million and the project is expected to be complete by July 2010.

The Company expects to fund the project from current cash on hand and cash flow generated by operations.

    Exploration Program

As announced on October 8, 2009 exploration drilling was re-started at Campo Morado. Exploration early in calendar 2008 both substantiated the geological model and showed potential for increasing the size of the G-9 deposit and for further G-9 type discoveries. Surface exploration drilling was suspended in August 2008 while the Company completed construction, commissioning and brought G-9 to commercial production and also dealt with challenges of the downturn caused by the global credit crisis.

The objectives of the exploration program are, as follows:

    1.  Increase resources in and around the G-9 deposit.
    2.  Investigate known Abajo horizon targets to the north of G-9.
    3.  Test previously untested gravity anomalies to the South of the San
        Raphael fault for stringer or sulphide zones that would indicate the
        potential for another G-9-style deposit.

It is expected that exploration drilling will continue for the remainder of 2009 and through 2010.

    Financial Results

The Company reported a loss of $0.6 million in Q3, down from a loss of $8.0 million in Q2. Expenses declined to $0.5 million in Q3 from $9.5 million in Q2 primarily due to a $5.8 million change in non-realized foreign exchange loss/gain. As well, interest costs, head office costs and stock-based compensation expenses all declined in Q3 compared to Q2. Before expenses, the Company reported an operating loss of $0.1 million in Q3, down from an operating profit of $1.4 million in Q2 despite depreciation charges declining to $3.0 million in Q2 from $4.3 million in Q2. The decline in operating profit was due to a reduced gross profit of $2.9 million in Q3 from $5.7 million in Q2.

    US$ (000)                                              Q3          Q2
    Revenue                                               29,942      20,145
    Cost of Sales                                        (27,015)    (14,401)
    Gross Profit                                           2,927       5,744
    Depreciation                                          (3,041)     (4,329)
    Operating Profit (Loss)                                 (114)      1,415
    Expenses                                                (464)     (9,450)
    Earnings (Loss)                                         (578)     (8,035)

The gross profit in Q3 was lower than Q2 due to three factors:

    1.  A portion of the concentrate sold, including all of the lead
        concentrate sales, in Q3 was from inventory from earlier stages of
        production and commissioning and, as such, carried a higher cost of
        sales. The higher cost concentrate from inventory has now all been
        sold and concentrate inventory consisted of less than one month's
        production at September 30, 2009, all of which was produced in Q3.
    2.  Higher concentrate treatment charges were incurred in Q3 as a result
        of strengthening zinc prices. The Company's zinc concentrate off-take
        agreement includes price participation with a basis zinc price of
        $1,300 per metric tonne for the balance of 2009 and then reverts to a
        basis zinc price of $2,000 per metric tonne for 2010.
    3.  The Q2 cost of sales were reduced due to a reclassification of
        depreciation from the first quarter of 2009 as the Company made the
        transition from commissioning to commercial operations.

The total cash costs(1) were $0.45/lb paid zinc for Q3, up from $0.39/lb paid zinc in Q2. The smelter treatment charges increased to $0.35/lb paid zinc in Q3 from $0.24/lb in Q2 due to increased price participation as a result of rising zinc prices. This trend continued over the quarter with smelter treatment charges of $0.37/lb in September. However, improved metal prices for by-product credits and improved copper and silver recovery during the quarter have led to a decline in cash costs month-on-month. With increased production, unit costs are expected to further decline in the fourth quarter.

                                              Jul-09      Aug-09      Sep-09
    Average LME Zinc Price ($/lb)              $0.72       $0.84       $0.85
    Cost to Concentrate ($/lb)                 $0.46       $0.52       $0.50
    Freight ($/lb)                             $0.10       $0.10       $0.10
    Smelter Charges ($/lb)                     $0.28       $0.35       $0.37
    Credits ($/lb)                            ($0.35)     ($0.47)     ($0.64)
    Cash Costs ($/lb)                          $0.49       $0.50       $0.33

The Company had $11.0 million in cash on hand at September 30, 2009. Working capital was $9.6 million after the inclusion of the $2.5 million current portion of the Credit Suisse long-term debt as a current liability. Principal payments on the debt are scheduled to begin in June 2010. Subsequent to the quarter-end, the Company continued to strengthen its balance sheet by closing a bought-deal financing which increased cash on-hand to approximately $22.5 million at November 1, 2009.

                                 Q3 2009     Q2 2009     Q1 2009    YTD 2009
    Production (contained in
    Zinc (000's Pounds)           22,137      21,319      16,895      60,351
    Copper (000's pounds)          1,776       1,740       1,180       4,696
    Lead (000's pounds)                0         588         328         916
    Silver (ounces)              301,202     284,352     229,539     815,093
    Gold (ounces)                  3,355       4,443       3,309      11,107

    Ore Mined (tonnes)           125,978     134,970     115,978     376,926
    Ore Processed (tonnes)       117,318     114,644     106,265     338,227
    tonnes per day                 1,270       1,260       1,180       1,239
    Zinc grade (%)                  10.9        11.0         9.2        10.4
    Copper grade (%)                 1.6         1.3         1.1         1.3
    Lead grade (%)                   1.2         1.2         0.9         1.1
    Silver grade (%)                 205         165         170         180
    Gold grade (%)                   2.2         2.3         1.7         2.1

    Recovery                     Q3 2009     Q2 2009     Q1 2009    YTD 2009
    Zinc (%)                          79          77          79          78
    Copper (%)                        46          55          45          49
    Lead (%)                           0          20          16          12
    Silver (%)                        39          47          40          42
    Gold (%)                          34          52          43          43

    Zinc (DMT)                    20,462      18,567      14,829      53,858
    Zinc (%)                        49.1        52.1        51.7        50.9
    Silver (g/t)                     259         206         252         239
    Gold (g/t)                       1.7         2.0         2.4         2.0
    Copper (DMT)                   4,894       5,603       3,015      13,512
    Copper (%)                      16.5        14.1        17.8        15.8
    Silver (g/t)                     822         572         694         690
    Gold (g/t)                      13.3         8.7        10.4        10.7
    Lead (DMT)                         0       1,280         650       1,930
    Lead (%)                                    20.9        22.9        21.6
    Silver (g/t)                               1,540       2,005       1,697
    Gold (g/t)                                  41.4        56.5        46.5

    Site Costs (US$/t milled)   $  77.29    $  76.28    $  70.64    $  74.86
    Total Cash Costs
     (US$/payable pound
     zinc)(1)                   $   0.45    $   0.39    $   0.44    $   0.43

    (1) See "Non-GAAP Financial Measures" on pg.15 in September 30, 2009 MD&A
        for more information.
    (2) These are provisional assays, subject to finalization.

    DMT means Dry Metric Tonnes

The conference call can be accessed by telephone at the following numbers (416) 644-3426 or the toll-free number (800) 731-5319. A live webcast will also be available at www.farallonmining.com. The replay of the conference call will be on the website after the call is completed.

Farallon's G-9 zinc, copper, silver, gold and lead mine at the Campo Morado Property in Mexico reached commercial production in April 2009. 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

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

Forward Looking Information

This 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, 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. There are no mineral reserves at Campo Morado and there is no assurance that the mineralization at Campo Morado will ever be classified as mineral reserves. 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.

SOURCE Farallon Mining Ltd.

For further information: For further information: on Farallon Mining Ltd., 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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