UPDATE 2-Gammon Gold gives bright outlook for Mexico project

Thu Dec 9, 2010 11:04am EST

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* Says drill results raise reserves at the Ocampo project

* Says mines on track for production by mid-2011

* Shares up 4 percent (Recasts; adds details, updates shares)

Dec 9 (Reuters) - Gammon Gold GAM.TO said drill results at the Ocampo property in northern Mexico surpassed its expectations, raising hopes for higher reserves at its flagship project.

The mid-tier gold producer, which currently expects 2010 production of 180,000-200,000 gold equivalent ounces for Ocampo, forecast "bonanza grades" from the San Amado mine in the project and said the Santa Eduviges mine showed grades above its expectations.

The company said that the drill results put the mines on track for production by mid-2011. It also made four new discoveries in the project.

"Not only have we been able to delineate numerous high-grade drill intercepts on known veins, we have identified a number of new discoveries," Peter Drobeck, senior vice president of exploration and business development, said in a statement.

As of Oct. 31, the company -- which is in a takeover battle with Timmins Gold TMM.V for Capital Gold CGC.A CGC.TO -- has drilled 105,903 meters at Ocampo, using 12 drill rigs working on the surface and underground.

Gammon Gold said it has expanded the exploration program at the project to the year end.

The company's shares, which have gained 10 percent in the last three months, were trading up 1 percent at C$7.72 Thursday morning on the Toronto Stock Exchange. They earlier touched a high of C$7.98. (Reporting by Aftab Ahmed in Bangalore; Editing by Unnikrishnan Nair) (aftab.ahmed@thomsonreuters.com; within U.S. +1 646 223 8780; outside U.S. +91 80 4135 5800; Reuters Messaging: aftab.ahmed.reuters.com@reuters.net))

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