UPDATE 1-US Gold upbeat on El Gallo project's initial study

Mon Feb 7, 2011 1:29pm EST

* Says results of preliminary economic study encouraging

* Shares up 3.8 percent on Toronto Stock Exchange (In U.S. dollars unless noted)

TORONTO Feb 7 (Reuters) - US Gold UXG.TO said on Monday the results from the preliminary economic assessment of its El Gallo gold-silver project in Mexico were "highly encouraging."

The Toronto-listed exploration company, which is led by industry veteran Rob McEwen, said it plans to update the size of its resource at El Gallo and complete a feasibility study on the project before the end of this year.

McEwen, who took the reins at US Gold in 2005, is known for having taken Goldcorp (G.TO) -- originally a collection of small companies -- from being a $50 million miner into a global powerhouse with market capitalization of over $8 billion. He has now set his sights on transforming US Gold into an S&P 500 component.

The preliminary economic study anticipates that El Gallo has the potential to produce 5 million ounces of silver and 50,000 ounces of gold annually over a six year period.

The project is currently expected to reach commercial production in early 2014 and require an initial capital investment of about $150 million, US Gold said in a statement.

The company also said that baseline environmental studies have been initiated and permitting for full mine operations is scheduled to be completed around the end of this year.

Shares of the company, which have risen more than 150 percent over the past 12 months, were up 26 Canadian cents, or 3.8 percent at C$7.11 early Monday afternoon.

($1=$0.99 Canadian) (Reporting by Euan Rocha)

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