Kootenay Gold Inc. - Promontorio (Sonora, Mexico)

Promontorio Overview

Promontorio is a silver-dominated polymetallic system hosted by breccias and stockwork veining transitional between a porphyry and intermediate sulfidation system. Based on extensive work to date and comparison to similar mineral systems in Mexico management of Kootenay Gold believes Promontorio has potential to host a silver deposit in the 50 to 150 million ounce range with grades in the range of 40 to 100 gpt silver and 2 to 4% lead + zinc*. The Company's objective is to test this potential and if realized systematically develop the Promontorio property taking the necessary steps to advance the project towards a production decision. * The potential quantity and grade is conceptual in nature. Insufficient exploration has been done to define a mineral resource of the target size and it is not yet known if further exploration will result in the target size being delineated. The ranges of grade and tonnes are based on those seen at similar systems throughout Mexico and on drill results to date.

Currently the project hosts an NI 43 101 compliant resource containing 8.9 million indicated ounces of silver plus 1.17 million ounces of inferred silver, 99.3 million indicated pounds of lead plus 13.4 million inferred pounds of lead and 110.8 million indicated pounds of zinc plus 14.3 million inferred pounds of zinc. The indicated resources are contained within 5.22 million tonnes of 52.7 grams per tonne silver, 0.86% lead and 0.96% zinc and the inferred resources are contained within 0.65 million tonnes grading 55.7 gpt silver, 0.94% lead and 1.0% zinc. (click here for the report)

Table 1
Category	Tonnes (millions)	Grade			Contained Metal
Category	Tonnes (millions)	Ag (g/t)	Pb (%)	Zn (%)	Ag (million oz)	Pb (million lbs)	Zn (million lbs)
Indicated	5.22	52.7	0.86	0.96	8.9	99.3	110.8
Inferred	0.65	55.7	0.94	1.00	1.17	13.4	14.3
*Metal prices and recoveries used in resource calculations: Ag $15/oz (82% recovery), Pb $0.97/lb (85% recovery), Zn $0.91/lb (91% recovery).
*Recoveries were determined by preliminary metallurgical testing conducted by G and T Laboratories in Kamloops, B.C. (see news release October 6, 2009).

On a silver equivalent basis this computes into about 20 million ounces of silver equivalent depending on various metal prices.

*RMV is a value assigned to a tonne of material based on the recoveries noted above from metallurgical testing and the respective prices of Ag, Pb and Zn. It is used to determine cutoffs in calculating resources and in this table also to illustrate that when silver price increases more than lead and zinc the RMV value increases even though silver equivalent values decrease.

The resource sits within a large mineralizing system which has been defined by extensive geologic mapping, sampling, geophysical surveys and drilling. The overall size of the system measures some 2.5 by 1 kilometer in a northeast direction and 2.5 kilometers by 700 meters in a northwest direction. The resource occupies an area of 140 meters by 60 meters to a depth of 400 meters so there is lots of area to discover significantly more resources. Recent drilling confirms this potential.

Recent drilling completed in late spring 2011 was very positive and has led management to focus the current drill program on a 1.0 kilometer long corridor some 200 meters wide that runs northeast to southwest. This mineralized corridor contains the Pit Resource and the Northeast Zone. Drilling completed as of May 2011 shows the corridor to be mineralized along the entire one kilometer. Management believes that this area represents the best opportunity to expand the size of the resource on the Promontorio property in the short term through further drilling programs. Multiple drill intercepts along the trend confirm the discovery potential of this area.

Select Highlights along the trend include (see drill results table for full results):

PC 28 which bottomed in 51 meters of 91.3 grams per tonne silver and 3.44% lead + zinc for a silver equivalent of 237 grams per tonne silver* including 18 meters of 188 grams per tonne silver and 7.98% lead + zinc for 526.2 grams per tonne silver equivalent*.
PC 53 returning 234 meters of 58 gram per tonne silver and 2.06% lead + zinc for 146 grams per tonne silver equivalent*. Included in this interval was 27 meters of 121.7 grams per tonne silver and 5.5% lead + zinc for 338.6 grams per tonne silver equivalent*.
PC 20 returned 264.7 grams per tonne silver and 1.0 % lead + zinc over 9 meters for 307.1 grams per tonne silver equivalent*.
* Calculated converting the value of lead and zinc into silver using silver at $15.00 per ounce, lead at $0.97 per pound and zinc at $0.91 per pound.

These highlights show the potential for the discovery of higher grades outside and within the current resource envelope providing for additional exciting upside.

RESOURCE CALCULATION - released August 18th,2010 (click here to read the news release)
In its September 28, 2010 NI 43-101 compliant technical report titled "Promontorio Property, Municipality of Cajeme/Rosario, Sonora, Mexico-NI 43-101 Resource Estimation", AGP Mining Consultants ("AGP") estimated that the Main Pit Zone of the Promontorio property contains Indicated Mineral Resources of 5.22 million tonnes averaging 52.7 g/t silver, 0.86% lead and 0.96% zinc, containing 8.9 million oz Silver, 99.3 million pounds of lead and 110.8 million pounds of zinc. AGP also estimated that Promontorio contains 0.65 million tonnes averaging 55.7 g/t silver, 0.94% lead and 1.00% zinc in the Inferred category, containing 1.17 million oz Silver, 13.4 million pounds of lead and 14.3 million pounds of zinc.
This independent study has provided the Company with a quantification of the Pit Zone and helped identify areas where the zone can be expanded through the next phase of drilling. (click here for the report)

A Multi-Phase drill program is now planned to expand the Pit Zone resource and test a 1000 meter mineralized corridor trending to the North East.

DRILLING ENCOUNTERS WIDESPREAD MINERALIZATION
Kootenay has completed several exploration programs on the Promontorio property, consisting of an airborne geophysical survey, geological mapping, till sampling, prospecting, a 3D IP survey and more than 41,000 meters of diamond and core drilling.
Drilling encounters wide to moderate intervals of both high and low grade silver-lead-zinc polymetallic breccias and stockworks in a breccia -stockwork setting that appears to be transitional between porphyry and intermediate sulfidation. A geological setting similar to many large Mexican polymetallic deposits. Drill results to date are from 140 holes with mineralization ranging from surface to depths of nearly 700 meters. Highlights include 6 meters grading 1008 g/t silver equivalent* and 166.57 meters grading 146.7 g/t silver equivalent* The Pit Resource sits in two zones one in 140 meters of strike by 60 meters to a depth of 450 meters and the other along 70 meters of strike by 20 meters to a 140 meter depth. The overall size of the system measures some 2.5 by 1 kilometer in a northeast direction and 2.5 kilometers by 700 meters in a northwest direction. The focus of the current drill program is along a 1000 meter by 200 meter corridor of mineralization trending northeast-southwest that hosts the Pit Resource.

*Silver equivalent is calculating using $15.00/ounce silver, $0.97/pound lead and $0.91/pound zinc and converting the lead-zinc into a silver value.

CURRENT DRILL PROGRAM

A 25,000 meter diamond drill program is underway which focuses on a 1000 meter long corridor extending from the Southwest Zone through the Pit Resource to the Northeast Zone. The purpose of the drill program is to provide infill and step out drilling from the many drill intercepts within the trend with the objective of increasing the current resource. (see drill results table for full results):

CHRONOLOGY OF A HISTORIC PRODUCER
The first work on the Promontorio property began in the early 1900s by the Manhattan Exploration Co., with funding provided by J.P. Morgan interests. An inclined shaft reaching a depth of 158.5 meters was collared in the hanging wall of the northeast-striking fault on a topographically prominent mineralized outcrop. Hence the name Promontorio. Two other exploration shafts located to the north were sunk to depths of 30 meters each and a production shaft was sunk to a depth of 25 meters when work was suspended in the 1920s due to the Yaqui rebellion.

In 1958, J.G. White Engineering Corp. recommended the property be put into production. An open cut 85 meters long from 7 by 25 meters wide and 20 meters deep was excavated to expose ore about the 100-level and a small mill was installed at the property.

In 1973, a feasibility study was prepared with an ore reserve estimated at 384,000 metric tons grading 0.12% Cu, 2.80% Pb, 1.74%, Zn, 367 g/t Ag and 1.5 g/t Au, to a depth of 100 m below the floor of the open cut. (This calculation is historic in nature, does not conform to NI 43-101 standards, and cannot be verified, and therefore should not be relied upon.)

In 1988, a small Mexican mining firm completed a 200 ton/day mill and processed approximately 48,000 tons of ore before low metal prices and high interest rates closed the mine in 1990.

In 199,7 a junior mining company optioned the property after finding extremely high values of silver, lead, and zinc from chip and channel samples. Limited exploration included eight drill holes, geological mapping, line cutting, and geophysical surveys. However in 1999, with a lull in the exploration and mining industry, the junior allowed its option on the property to lapse.

METALLURGY

Preliminary metallurgy has been conducted on a composited 115 kg. sample taken from with in the Pit Resource. The work was conducted by G&T Metallurgical Services Ltd. of Kamloops, B.C. The master composite contained approximately 0.9 percent lead, 1.0 percent zinc, 56 g/tonne silver and 0.6 g/tonne gold. The sample responded well to a standard lead/zinc sequential flotation flow sheet producing concentrates that would be highly saleable in the event a deposit is developed.

Locked cycle tests were conducted, in which 85 percent of the feed lead was recovered into a final lead concentrate containing 62 percent lead and 4250 g/tonne silver. On average, 82 percent of the silver reported to the lead concentrate and 7 percent reported to the zinc concentrate. Zinc was 91 percent recovered to the final zinc concentrate which graded 57 percent zinc.

Batch cleaner test results indicated that 87 percent of the gold could be recovered into a pyrite concentrate, following lead and zinc recovery, which contained 14 percent of the feed mass. Sodium cyanide leach tests conducted on pyrite concentrates showed further work is required to develop a suitable process to extract gold from the pyrite concentrate. Approximately 87% of the gold reported to the pyrite concentrate with approximately 6 percent of the gold in the lead concentrate.

Further test work is recommended to optimize the process grinding requirements, and review the variability of the metallurgical performance and gold association over different areas of the deposit.(click here to read the news release)

GEOLOGY AND MINERALIZATON

The claims comprising the Promontorio Property lie on the western margin of the Sierra Madre Occidental Mountain Range within the Tecoripa. Geologic units in the immediate vicinity of the Promontorio prospect include basement rocks of Late Cretaceous and Lower Tertiary age Tarahumara Formation overlain unconformably by Late Tertiary volcanics and conglomerates of the Baucarit Formation. The Promontorio prospect lies very proximal to the transition between the basement and the cover units. Mineralization is entirely hosted in the Tarahumara Formation.

The Tarahumara Formation consists of volcanic rocks, mainly crystal-lithic-vitric fine to lapilli tuffs, locally breccia and feldspar to hornblende-feldspar andesite and sedimentary assemblages comprised of grey sandstone, red bed sandstone and limestone-sandstone assemblages. The units are are locally interbedded with the limey sandstone. The "limestone unit" comprises limey sandstone, sandy limestone and siltstone with local lenses of massive (to 2 metres) limestone. Volcanic rocks are intimately interbedded with the sediments as the sediments are intimately interbedded with the volcanics.

Intrusive rocks are subordinate to the volcanics and sediments of the Tarahumara Formation and include an east northeasterly elongate dyke-like fine-grained diorite and lessor biotite-feldspar porphyry interpreted to represent an intrusive that may be either related to the Laramide or the Tarahumara. North of the diorite, small exposures (plugs) of diorite, quartz monzonite and porphyry occur.

The Buacarit Formation forms post mineral cover rock in the area and is comprised of massive-bedded, polylithic conglomerate with dominantly volcanic clasts. Interbedded with this conglomerate are minor rhyolites, locally flow-banded.

Preliminary satellite imagery interpretations indicate that the Promontorio mine area occurs at the intersection of regional WNW and NE-trending fault zones. The WNW-trending structures are evident in the field as series of steep brittle-ductile shear zones that extend across the whole district and show at least two phases of predominantly strike-slip movement

Mineralization found to date lies in an extensive, low-lying area of little or no outcrop and occurs as a series of stock-work zones, disseminations and breccia pipes hosted by the Tarahumara Formation and Laramide intrusive rocks. Mineralization occurs as mainly as pyrite, galena and sphalerite in disseminations, veinlets, veins, stockwork veins and veinlets and as matrix infilling of breccia bodies. Associated alteration consists of strong outer propylitic alteration with 2 to 3 % dissemintated pyrite around areas of veining, stockwork and breccia that are altered by silicification, sericitization, carbonate in veins/veinlets and breccia infilling and matrix, sericiteuartz) cement. Alteration around the breccia in the Pit Resource area is overprinted by locally intense argillic alteration that appears to be derived from supergene oxidation of the sulphides. Calcite-barite veins with or without mineralization appear to be distal vestiges of stockwork and breccia zones. A strong replacement of matrix by either silica or potassium feldspar occurs along the main northeast corridor of mineralization and appears stonger near the Northeast Zone. There is well-developed silver-base metal-gold mineralization in breccias and stock-work veining associated with the silicification.

The whole of the Promontorio regional area is part of the basin-and-range province that defines the state of Sonora west of the Sierra Madre Occidental mountain belt. The area is marked by a series of major, northerly-trending valleys that define graben basins, commonly filled with variable thickness of conglomerate and/or rhyolite and lesser basalt of Miocene age (Baucarit Formation). A complex network of smaller basins outlines sets of pull-apart graben basins. These large and small graben basins mark the locus of pre-existing structures, activated during a Miocene extensional event. These structures form two dominant trends, NE and NW, both major hosts to regional mineralization.

Additional Target Areas

Promontorio consists of about 80,000 hectares of concessions within which there are numerous mineral occurrences. Other than the Pit Zone Work is currently focusing on three areas containing six different mineralized zones of interest. The areas are called Leona, Tordillo and Nopalera. Additional areas of interest include the Vineteria, Gringo and Rico areas described in the Company's July 21, 2010 news release.

The Mineral Rich Sierra Madre Trend of Mexico
Kootenay has a long term focus on exploration in Mexico and has established a regional office in Hermosillo, Sonora Mexico the capital of Sonora state. The reason for this focus is because of the favourable prospectivity and discovery rate in Mexico. To illustrate the area within about 150 kilometers of Promontorio had no operating mines in 2001. Today the area boasts 8 operating gold, gold-silver and copper mines. This is an impressive rate of discovery and development which is even greater when the whole of Mexico is examined.

Major mines in about a 150 kilometer radius of Promontorio include: Minefinder's Dolores gold silver mine, Alamos Gold's Mulatos gold mine, Agnico Eagle's Pinos Altos gold-silver mine, Gammon Gold's Ocampo gold-silver mine, Cour D'Alene's Palmarejo silver-gold mine, Goldcorp's El Sauzal gold mine, Pan American Silver's Alamo Dorado silver mine and the privately owned Piedras Verdes copper mine. Major projects in the same area include Pediment's La Colorado, Grayd's Tarachi and La India, Kimber's Carmen and the privately owned Bahuarachi.