Summary Bandera Gold Ltd. has signed an option agreement with Minera San Jorge, S.A. de C.V. (MSJ) to acquire a 60% interest in the Cinco Minas and Gran Cabrera Mexican mining properties located in the Municipality of Hostotipaquillo, Jalisco, Mexico. Complete details of this agreement have been previously reported in a company news release and are available for review on SEDAR. The Cinco Minas site covers roughly 10,750 hectares and is located approximately 100 kilometres northwest of the City of Guadalajara. The Gran Cabrera site covers roughly 4,300 hectares and is located approximately 35 kilometres northwest of Cinco Minas. Both sites are on strike to a major regional left lateral fault system that hosts many historical areas such as the old Santo Domingo mine site, currently the subject of extensive exploration drilling by Stroud Resources Ltd., which is midway between the two historical sites. Anaconda Mining Company was the previous owner of the Cinco Minas property. Between 1922 and 1928 it mined a reported 1,083,000 tonnes of ore averaging 3.17 g/t gold and 476 g/t silver. This equates to 97,364 oz. of gold (2,760 kilograms) and 15,095,915 oz. of silver (427,954 kilograms). It should be noted at the outset that current resource estimates far exceed the total amount reported removed from the mine.
The Cinco Minas and Gran Cabrera properties both host epithermal systems with adularia-sericite type quartz veins with goldsilver mineralization. The main zone system at Cinco Minas has an identified strike length of approximately 5 kilometres with additional parallel to sub-parallel veins. Past mining has produced several bonanza grade veins with high gold credits. These types of structures have also been reported in the recent exploration drilling at Cinco Minas. MSJ is extensively refurbishing the old mill site located just north of the edge of the town of Cinco Minas. A new 60 tonne/day pilot plant is being constructed on that site. Further work plans include the installation of a 250 tonne intermediate sized mill and the conducting of bulk sample operations with test heap leaching. Work was done to prepare the exposure of the end of the Destajos level at the El Abra mine in Cinco Minas to allow immediate entry into the old underground adits for extraction and exploration. This entry is planned for the winter of 2006- 2007. Additional work was undertaken to also attempt a side entry to Destajos via the old San Diego adit. However, heavy rains made the access program too difficult to proceed at this time. Several descents were made into the El Abra mine using the existing shafts and tunnels during the summer of 2006. These descents allowed for new samples to be taken and mapping to be updated to a depth of 120 metres below the mine mouth. During this program a 6.3 metre true width of high grade mineralization was located and mapped in the San Diego cross portion of the Destajos level. This zone produced assay values of 1.76 to 6.20 g/t Au with 202.2 to 684.2 g/t Ag, which provides an average value of 4.00 g/t Au and 458 g/t Ag. It is also important to note that this portion of the old mine works was considered the low grade portion of the mine structure and the drive was always to seek the higher grade materials at depth. 2 Bulk sampling was completed at the crest of Cerro Colorado during the summer of 2006. This area had previously only preliminary sampling and exploration work done on it. The 2006 program saw the crest removed and approximately 4000 tonnes of 0.032 oz/st Au (1.10 g/t) with 1.87 oz/st Ag (64.11 g/t) average grade materials placed into stockpile. Cerro Colorado is now an operational quarry plateau covering 3,120 square metres with 20 x 45 metres (900 square metres) of vein exposed on the floor.
A haul road has also been completed from the new plateau to the new mill site. In addition, an old mine adit that had been driven into the southwest slope was exposed and prepared for re-entry. This adit extends further than the 7 metres that remain open. A collapsed zone must be removed and deeper exploration done. An area of note is the El Cohete mine site located just northwest of Cerro Colorado. This mine is located deep in the valley 60 metres below the original Cerro Colorado crest. The mine was originally mapped as a single adit into a 6 metre wide vertical vein. This structure has been updated to show that the mine is actually situated within a stock work of at least 6 veins with an apparent width of 100m. Further sampling and structure delineation is ongoing. The Minas del Coral area (Coral) has been identified as an open end vein structure located north of the San Juan mine. This area separates and is situated in the offset between San Juan and the Magdalena vein system. A series of small mines and adits were located in the dense underbrush and this work has provided new structural information to assist in determining vein orientation. Several areas of high grade mineralization have been identified that were previously regarded as barren zones in past reporting. Results as high as 2.35 g/t Au and 728.4 g/t Ag have been obtained from the recent exploration work. In addition to the bulk work, primary field exploration including mapping and new assay work has been conducted along strike. New low level air photography and GPS controlled survey work has been contracted with a spring 2007 completion date. Due to extensive new road system development and clear cutting of old adit mouths and stockworks, the orthophotography was delayed until these new ground controls are in place. New satellite photography has provided suitable interim mapping requirements.
This program will allow the new and old data sets to be joined in a manner that will allow for proper three dimensional computer analyses to be completed for ore body modeling. The exploration work at Gran Cabrera is still being limited to ore body modeling and topographic surveys until the Cinco Minas operation is underway. The area around Cabrera was examined during the period to gain further on ground understanding of the geological character of the region and to refine current and develop new theoretical models for emplacement. Advances made on the Cinco Minas geological model during this current exploration phase suggest that similar major additions to highly mineralized rock quantities are possible as well. It is also important to note that through interviews with local elders a significant amount of local history was obtained regarding the ongoing mine development post 1928. Even with the loss of a foreign corporate structure due to Revolution, the local people were able to expand the mine operations as a co-operative up to 1945. This activity resulted in the opening of many new surface adits across the property and expansion of some of the underground levels. 3 There are no written records presently available on the expansions and developments in and around the mine during this period. This project should be advanced as all foundation reporting has concluded that significant amounts of highly mineralized rock remain in the old work areas and in near proximity to those sites. Modeling was originally done at Cinco Minas to demonstrate the feasibility of cut block open pit removal of the upper levels of the old mine works as well as new quarry activity at Cerro Colorado which is approximately 1 kilometre southwest of the old Cinco Minas mill site. Even the current examination of the old mine works suggests the potential of re-starting underground operations. However, more engineering work is required to make any determination on what method or methods would suit the future mine development.
The building of the milling facilities is also well underway, with most of the foundation work complete. Placing of crushing equipment and in place welding of large tank structures are presently the focus of the design and construction group. The new 60 tonne per day mill is expected to be complete by mid-February of 2007. Introduction The Cinco Minas group is a suite of historical mining properties comprising 12 exploitation concessions covering 10,750.0690 hectares. The Gran Cabrera group is also a historical suite comprising 3 exploration and 2 exploitation concessions covering a total of 4,242.0946 hectares. The author has not performed a due diligence on the tenure or ownership status of the concession groups. All information was provided by MSJ and is assumed to be in good legal standing. The issuer, Bandera, has conducted due diligence on the legal standing through appropriate legal counsel. This author’s original report is best described as a compilation of historical and recent exploration and mining efforts to assist in quantifying the potential asset to the issuing company. A significant amount of exploration work had been undertaken by previous operators who collectively were unable to determine how to take the Cinco Minas property back into a production mode. While that aspect was examined to determine the factors that drove those decisions, the writer also engaged in a series of interviews with local elders to learn more about the post 1928 history of the property. The official government records on the mine history essentially ended in the early 1930’s after the mill was sold and moved but the mine continued to operate as a co-operative of the local population until circa 1945. With roughly 1,000 persons directly employed in the mine, the labor pool remained largely in place even after the mill was sold. The miners continued to expand the mine and the ore was then shipped directly to an assortment of Mexican mills. The high grade (3 kg/tonne Ag) ore located at the bottom of the mine was the driving force to continue mine descent. It was reported that in-fighting, graft and corruption within the cooperative was the reason for the closure and not the lack of ore.
Even after the main mine was closed, other artisan mines sprang up across the area to continue mine operations. An old ball 4 mill and gravity system with tanks was located in the underbrush overgrowth near the San Juan mine. That operation was shut down in the 1970’s due to another local flare up. The history section of this report details more of the circumstances of these historical situations. However, it is important to note that at no time in the research was the suggestion ever found that the mine was closed due to a lack of material. The investing public has to be confident that the operation is viable into the future due to the quantity and quality of the possible ore potential and not only due to presently high metal prices. Productive and profitable mining operations only survive when a series of factors are in place to support all of the issues of sustainable development. In the writer’s opinion the factors are in place and the long term success of the mine operation is viable. This thought is further reinforced by the new historical information and the additional ore grade materials being located all along the strike towards and including Gran Cabrera. The issuer, Bandera Gold Ltd., with its head office located in Edmonton, Alberta, signed an agreement with Minera San Jorge S.A. De C.V. (MSJ) to develop two of the historical mining camps in the Municipality of Hostotipaquillo, Jalisco, Mexico. It is important to note that the two camps, Cinco Minas and Gran Cabrera are representative of a host of old mining operations that cluster in the region. Looking at map 2 one can understand the overall significance of the area in the rich mining history of the region. The map is cluttered with old mine sites that in many cases supported operations up to the early 1900s. While many had their roots dating back to the Spanish workings of the 1500s each had an economic reason to expand. The common factor for all of the properties is that the regional geology supported the development of the mines. This is a critical element in understanding the significance of the area as being a strong target for further operations. 5 Map 1 – Old Hostotipaquillo map from internet site by Ramiro Garzon 6 Map 2 – Old Mine Map – supplied by MSJ In many mining regions, operations will cluster in a very site specific shear zone or similar geological feature that supports development.
These clusters are generally tight and very discrete in orientation. However, in the Hostotipaquillo area, the clusters are wide spread and the entire region has to be considered in determining the significance of the size of the geological hosts. The historically considered ore bearing structures have been shown to be structure related, part of a volcanic complex or both. Geographical setting and physical access to each of the mine sites has played a large part in the magnitude of development of part