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TABLE OF CONTENTS Feb 25 - Mar 3, 2013 Volume 99 Number 2 - 0 comments

Colombian violence hurts Continental despite high grades

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By: Gwen Preston

VANCOUVER — Drills at Continental Gold’s (CNL-T) Buritica project in Colombia keep hitting new areas of high-grade gold and silver, but a resurgence of violence in the country following the end of a two-month FARC ceasefire is making investors nervous, and CNL shares are paying the price.

The latest results from Buritica include 10 holes that probed Yaragua, one of two major vein systems at the site. Several of those holes intersected a new vein system 400 metres north of the main Yaragua system, an area that Continental has dubbed San Agustin.

On the western side of San Agustin, hole 329 cut 0.4 metre grading 49.7 grams gold per tonne and 163 grams silver per tonne, while hole 324 returned 0.5 metre of 0.8 gram gold and 647 grams silver. On the eastern side of the new zone, hole 93 intersected 3 metres of 7.2 grams gold, 43 grams silver and 8% zinc, while hole 94 returned 2 metres grading 1 gram gold and 701 grams silver.

“We are encouraged that our first two drill holes in San Agustin produced multiple veins at significant depths that correlate well with artisanal workings,” Continental CEO Ari Sussman says. “A dedicated diamond drill rig had already been secured for this target and will begin turning in April to test the system at shallower depths, and we are hopeful the grades and thicknesses will improve.”

The rest of the drill results expanded the main Yaragua system. Several intercepts extended the limits of known mineralization to the north, including 3.1 metres of 8.5 grams gold and 242 grams silver. Other hits expanded the system eastward, including 5.1 metres of 3 grams gold and 829 grams silver, as well as 27 metres of 9.5 grams gold and 54 grams silver.

The Yaragua system has been drill tested along 900 metres of strike to a 1.3 km depth. The other major vein system at Buritica, known as Veta Sur, has been traced for 570 metres of strike to a 1.2 km depth. Both systems are characterized by multiple, steeply dipping veins and broad, disseminated mineralization, and both remain open in all directions.

In October Continental updated the resource at Buritica, bringing the measured-and-indicated count to 3.74 million tonnes grading 13.6 grams gold, 38 grams silver and 0.7% zinc. Inferred resources add 13.3 million tonnes at an average grade of 8.8 grams gold, 33 grams silver and 0.5% zinc. Combining all three resource classes, the deposit is now home to 5.4 million oz. gold and 18.8 million oz. silver.

But the updated resource was out of date even before it was released, as it excluded several veins discovered after the drill data cut-off. Now, five months later, new discoveries are piling up, and Continental is already at work updating the resource again.

The company will have a lot of data to add to its calculations this time. There are seven diamond drills at work at Buritica, and Continental is aiming to complete 95,000 metres of drilling this year. Half of the drilling will test new exploration targets, including the La Estera area in the south, where drills hit into three vein systems last year, as well as the newly discovered San Agustin area and the Pinguro zone.

Continental is using the other 48,000 metres of drilling to better define the Yaragua and Veta Sur systems. By year-end the company hopes it can upgrade a large portion of the resources in these areas to measured-and-indicated status.

Buritica is located 75 km northwest of Medellin and is accessible by paved road. Continental is the sole owner of the 290 sq. km project. The deposit at Buritica is the northernmost major deposit in the Middle Cauca belt, one of three major gold belts in Colombia. Middle Cauca hosts several large deposits, including AngloGold Ashanti’s (AU-N) La Colosa project.

Continental is already eyeing production at Buritica, and to that end the company is advancing a preliminary economic assessment for the project. But the company is not waiting until the study is complete to start pre-development work.

In August Continental received permission to build a 6 km switchback road from the town of Buritica down into the Higabra Valley, where it plans to build the mill. Continental was also granted permission to drive a 1 km access tunnel. The 5-by-4.5-metre tunnel will enable underground drilling and help delineate the Yaragua and Veta Sur systems. Later, Continental plans to use the tunnel as the main access point for underground mine development.

All things considered, Buritica is progressing well. Until late January, Continental’s share price reflected that, having climbed from below $6.50 to above $9 in six months. Then Colombia’s second-largest guerilla group — the National Liberation Army — kidnapped five workers from a gold-exploration project in the country’s north.

The Jan. 18 kidnapping coincided with the end of a self-imposed ceasefire by Colombia’s main guerilla group, the Revolutionary Armed Forces of Colombia (FARC). Since then, kidnappings and infrastructure attacks in the country have surged, even though the government and the FARC are in their fifth month of peace talks in Havana, Cuba.

It’s an odd situation: the government and the rebels agreed to negotiate peace in Havana while fighting each other back home. In a testament to its dedication to peace, FARC maintained a self-imposed ceasefire from Nov. 20 to Jan. 20. There were some incidents during the truce, but violence declined markedly.

Now the truce is over, and violence is again on the rise. On Jan. 22 the FARC seized two police officers in Cauca and a soldier in Narino. On Feb. 1 the guerillas bombed a rural school; the next day they killed three policemen; and three days later the FARC claimed responsibility for two car bomb explosions that killed at least one person. A pair of bomb attacks also put two major oil pipelines out of service, erasing 100,000 barrels of daily oil transport capacity. The bombings were the sixth and seventh pipeline attacks in the country already this year.

The rebels took up arms in 1964, forming a Marxist group fighting social inequality and concentration of land among the wealthy. They later turned to drug trafficking and kidnapping to finance their activities. Over the years FARC has held dozens of politicians, police officers and soldiers for ransom.

A U.S.-backed offensive in 2002 improved security in the country, and billions of dollars in investments poured into Colombia as oil explorers searched for crude and mineral explorers searched for gold, silver and other metals.

Continental was part of that flood of investment, and the company has found the minerals it sought. Now it just needs those peace talks in Havana to do what no previous effort has managed — find a solution to a decades-long war that has killed tens of thousands of people.

International investment depends on it. Continental’s share price has lost 21% since Jan. 22, closing at $7.24 on Feb. 12. The company has 125.8 million shares outstanding.

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