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Mexican Silver:
I'm all a-GOG

Bob Moriarty
Oct 24, 2007

I'm just back from another two weeks on the road visiting up-and-coming juniors. This trip took me to Mexico for a few days and then to the mouth of the Amazon in Brazil.

My first visit was to the San Diego project of Golden Tag Resources [GOG.V] located near the city of Torreon in Mexico. Golden Tag has entered into a joint venture with ECU silver to explore the property. Terms call for GOG to spend $1.5 million to earn a 50% interest in San Diego. It's a no lose deal for both companies. ECU gets someone else to spend the money yet keeps a 50% interest. Golden Tag gets a piece of a nice potential property for peanuts.

Golden Tag has just started a third phase drill program of 6000 meters in order to define a greater resource. I try to spend some time on the website of all the companies I intend to visit to get a better feel for their intentions and capabilities. Quite frankly, the website didn't knock me over. They have a nice potential gold project in Red Lake; on strike with the Campbell and Goldcorp mine and they have this half interest in a nice potential silver project in Mexico.

I will say Mexico is about my most favorite place in the world for mining projects. There is silver and gold all over the country. 80 years of under-exploration is giving way to some incredible opportunities. In late August, Golden Tag released results from the first two phases of drilling. The results were excellent and showed strong silver, lead and zinc numbers.

I go to a lot of projects; I probably spend half my time visiting different companies. [Editor's note: Half the time? Hmmm - he's away from home 3/4 of the time, I wonder... He obviously pays Ted a bunch of 'hush dosh'] I see a lot of drill core and read a lot of press releases touting drill results. And they get really boring. It's very difficult for professionals to understand drill results as stated in the typical press release and even more difficult for ordinary investors. Those companies who want to confuse, do so easily.

But I've been on the ground at San Diego and seen the core that went with the results. They claim a 2.2 million ounce silver resource but that is based on a very limited number of drill holes. ECU and GOG are in the process of working on a new 43-101 resource based on the Phase 1 and Phase 2 very successful drill programs. The expanded resource should be out by the end of November. Based on the holes I saw, it's hard to come up with a number but depending on the cutoff grade, it could easily be a barnburner. At these prices, the stock seems pretty cheap to me.

Project geologist Kateri Marchand has worked nothing short of a miracle. Along with two assistants, she has run the entire exploration program, drilled 5,300 meters of diamond core and defined a lot of new ounces. The budget was about $1.1 million and with the new 6,000-meter drill program, GOG expects to have earned their 50% interest shortly.

I am real sure that when the 43-101 is released, anyone interested in silver is going to wake up in a hurry. Kateri has managed more work for less money in a shorter period than any project I have seen in years. I was really impressed with her accomplishments. There is a lot of silver at San Diego.

The project is only 9 KM from ECU's silver mine and mill at Velardena. It's in ECU's best interest to have multiple sources of feed for their two mills with 400 TPD capacity. I suspect GOG and ECU will put San Diego into production a lot sooner than anyone expects.

When you are comparing mines and projects, the single most important element is always the people. I've seen great projects screwed up; I see it all the time. But good management will always come up trumps. That's what makes them good management. GOG identified a great project and locked up half of it. They aren't going to be the biggest silver producer in Mexico but I think San Diego has excellent potential for bulk tonnage and I know they have spent their money wisely.

Lead and zinc prices have been hitting new records and the rock at San Diego has good percentages for both on top of the silver. The area has been mined for over 400 years and the surrounding communities have potential for the hundreds of skilled miners necessary to get into production. If you want to be mining silver, lead and zinc, the Velardena/Torreon area is about the best area in the world to be mining.

ECU Silver has a market cap of about $480 million based on an Indicated and Inferred silver resource of about 98 million ounces. They have five mines in the area and two mills but the market is giving them almost $5 an ounce for silver in the ground. At that price, GOG would be fairly valued today but I expect a much higher resource, their drill results really were spectacular. In any case, ECU and GOG will be releasing a joint resource. In the case of ECU, the resource will be for all their properties and in the case of GOG, only the San Diego project but it would be easy for any investor to calculate a fair value based on how the market values the increase in ECU ounces.

Golden Tag has about $2.5 million in the bank. They will spend an additional $300,000 at San Diego which gives them their 50% earn in. And at Red Lake, they have a budget of $700,000 for drilling by their partner. They anticipate an additional $500,000 in matching funds to complete the Phase 3 drilling in Mexico. And in addition, they expect to bring in about $4 million with the exercise of warrants and options. The company has 35.1 million shares outstanding and 45.9 million shares fully diluted.

I'm as biased as I can be. Management and Kateri really impressed me with how much has been accomplished at San Diego in about a year. The 43-101 will show the potential and it will be out very soon. With a $12 million market cap, GOG is really cheap. Golden Tag is an advertiser and I do own shares. Do your own due diligence, por favor.

Golden Tag Resources
GOG-V $.395 Canadian (Oct 23, 2007)
31.3 million shares outstanding
Golden Tag website

Bob Moriarty
President: 321gold

321gold Ltd