Gammon Reports Strong Production Performance With Ocampo and El Cubo Underground Production Exceeding Targeted Levels

Jan 13, 2010, 08:00 ET from Gammon Gold Inc.

HALIFAX, Canada, January 13 /PRNewswire-FirstCall/ --

- TSX: GAM / NYSE: GRS / BSX: GL7

- http://www.gammongold.com

Gammon Gold Inc. ("Gammon") (TSX:GAM and NYSE: GRS): Gammon is pleased to provide preliminary fourth quarter results as well as an update on operations:

     Q4 and Key Operational Highlights
     ---------------------------------

     - Consolidated production in the fourth quarter represented the best
       quarterly performance in 2009. Consolidated gold production for the
       quarter was 37,066 ounces, an increase of 5,529 ounces (18%) over the
       previous quarter. Consolidated silver production for the quarter was
       1,481,773 ounces, an increase of 216,128 ounces (17%) over the
       previous quarter.

     - Using a 55:1 gold equivalent ratio, gold equivalent production was
       64,007 ounces, an increase of 9,459 ounces (17%) over the previous
       quarter. Using the realized gold equivalent ratio for the quarter of
       62:1, gold equivalent production was 60,921 ounces, an increase of
       9,874 ounces (19%), over the previous quarter.

     - Using a 55:1 gold equivalent ratio, total cash costs per ounce in the
       fourth quarter decreased by 10% as compared to the previous quarter.
       Using the realized gold equivalent ratio of 62:1 for the quarter,
       total cash costs were $444, a decrease of $56 per ounce (11%), over
       the previous quarter.

     - The significant improvement in operating costs was achieved despite
       the impact of non-recurring maintenance costs at the Ocampo mill
       processing facility and primary crushing circuit. These higher
       maintenance costs have been partially offset by the Ocampo mine's
       access to lower cost 20MW of grid power.

     - At Ocampo, the planned reinvestment and reorganization program in the
       underground operation has facilitated a significant increase in
       production volume. By the end of the year, production from the
       underground averaged 1,434 tonnes per day in the month of December,
       exceeding the Company's year-end target of 1,200 tonnes per day by
       234 tonnes per day (20%). The average month over month production
       rates during the quarter were as follows:

       - October:   650 tonnes per day
       - November:  1,235 tonnes per day
       - December:  1,434 tonnes per day, representing a 20% increase over
                    the targeted 1,200 tonnes per day rate

     - The underground reinvestment program at Ocampo strongly positions
       future production sequencing such that at quarter end, the mine was
       actively producing from 11 working areas which compares to 2-3 working
       areas at the beginning of the year. It is estimated that the mine now
       has developed access to ready-to-be drilled or in-process-drilling
       inventory of approximately 200,000 tonnes which compares to
       70,000 tonnes at the beginning of the year.

     - As expected, the re-optimization of the Ocampo heap leach facility has
       allowed the mine to target increased stacking rates with the mine's
       heap leach operation averaging 9,775 tonnes per day in the fourth
       quarter. The increase in higher grade underground production
       proportionally decreases the tonnes of open pit ore being sent to the
       mill processing facility. As a result, a greater portion of the higher
       grade open pit tonnage is routed to heap leach facility for
       processing, which increases the overall head grades being placed for
       leaching. This targeted grade improvement, together with the
       engineered increase of stacking capacity, is expected to increase
       future heap leach metal production rates.

     - Despite being a record production quarter on many fronts for 2009,
       Ocampo's metal production and cost structure was impacted by two
       unanticipated events. This included a 3-day, unseasonal rainfall of
       more than 200 millimeters in October as well as the reduced
       availability of the Ocampo mill processing facility including a 20-day
       period where the third mill was offline. As a result, a portion of the
       metal production originally anticipated for the fourth quarter will
       instead be realized in the first quarter of 2010.

       - The heavy and unseasonal rainfall impacted production at the
         underground mine over a period of 5 days and at the open pit mines
         for a period of 10 days. The significant rainfall impacted the
         mine's heap leach operations through the dilution of the pregnant
         pond and the overall leaching solutions. This issue was remediated
         over a 4-week period, after which the heap leach processing facility
         was producing at targeted output levels.

       - During the quarter, daily production rates at the Ocampo mill
         facility were negatively impacted by the following:

         - During the commissioning period of the Phase III mill expansion it
           was discovered that the engineering had undersized the required
           cyclone capacity. This limited the maximum daily capacity of the
           mill to approximately 3,100 tonnes per day and reduced the silver
           recovery by approximately 5%, to 77%. Five Krebb cyclones were
           ordered and two of the five cyclones were installed by the end of
           December with immediate positive benefits in both tonnage and
           silver recoveries. The Phase III commissioning will now be fully
           completed during Q1, 2010.

         - On November 28, 2009, the Company detected a problem with the
           smaller, third mill. When the feed trammel was disassembled it
           was discovered that the holding bolts had failed and the pinion
           drive was damaged. The mill repairs were completed in 20 days and
           the mill was restarted by December 15, 2009. The enhanced
           configuration of the mill processing facility demonstrated its
           inherent flexibility as the two remaining mills continued to
           operate uninterrupted during this maintenance period. This
           operational flexibility allowed the overall mill circuit to
           process an average of more than 2,600 tonnes per day during the
           maintenance period.

     - At El Cubo, the mine reported its best ever underground production
       rates of 1,830 tonnes per day during the fourth quarter. This
       represents an increase of 206 tonnes per day (13%) over Q1, 2009, the
       pre-labour disruption period. By the end of 2009, underground
       production averaged 1,876 tonnes per day. This production ramp up is
       primarily attributable to the adoption of the new 7-day continuous
       work schedule and the implementation of a production bonus
       remuneration incentive scheme during the fourth quarter. The average
       month over month production rates during the quarter were as follows:

       - October:   1,754 tonnes per day
       - November:  1,861 tonnes per day
       - December:  1,876 tonnes per day, representing a 16% increase over
                    the Q1, 2009 average

     - A significant increase in quarterly cash flow from operations,
       combined with net proceeds of $109 million from the public offering
       completed in October, has contributed to the Company's strong cash
       balance of $129 million as of December 31, 2009.

     - In addition to the significant cash reserve balance, the Company's
       US$30 million revolving line of credit facility has been increased to
       US$50 million following the execution of the facility option to
       increase funding capacity to US$50 million through the participation
       of a second syndicate partner. Effective December 31, 2009, Societe
       Generale has joined the credit facility as an equal syndicate member
       with The Bank of Nova Scotia. All terms and conditions remain as per
       the originally established facility with the approximate undrawn
       capacity on this facility now representing US$23 million.

     - The Company is currently finalizing its life of mine production plans
       and anticipates that it will provide updated 3-year guidance and 2009
       NI 43-101 Reserve and Resource updates on, or about, March 31, 2010.

"The fourth quarter caps off a transformational year for Gammon Gold. Operations at both mines continue to improve. I am particularly pleased with the continued improvement in underground productivities at both Ocampo and El Cubo, with both operations setting quarterly records. Using the Company's long-term gold equivalency ratio of 55:1, the significant reduction in 2009 annual cash costs of $82 per gold equivalent ounce, or 16% over 2008, demonstrates the success of the operation team's continued focus on implementing ongoing operational efficiencies that will continue to positively impact our operations going forward." stated Rene Marion, Chief Executive Officer. He continued, "Additionally, through the efforts of the entire Gammon team, we now enjoy a strong cash flow profile and a significantly enhanced cash position. Our improved operations, underpinned by our strengthened Balance Sheet, positions the Company well for future growth and success. I believe that 2010 is a year that holds great promise for the Company and we are committed to delivering on that potential."

     Fourth Quarter 2009 Production Highlights
     -----------------------------------------
     (all amounts are in U.S. dollars)

     -------------------------------------------------------------------------
                                         OCAMPO                  EL CUBO
     Three Months Ended               Dec         Dec         Dec         Dec
                                    31/09       31/08       31/09       31/08
     -------------------------------------------------------------------------
     Gold ounces produced          28,169      33,877       8,897       9,891
     Silver ounces produced     1,085,406   1,176,427     396,367     473,466
     Gold equivalent ounces
      produced (Realized)          45,681      48,922      15,240      15,967
     Gold ounces sold              29,463      31,671       8,786       9,333
     Silver ounces sold         1,125,069   1,083,571     384,442     450,747
     Gold equivalent ounces
      sold (Realized)              47,539      45,546      14,923      15,116
     -------------------------------------------------------------------------
     Total cash costs per
      gold equivalent ounce(x)       $385        $383        $632        $502
     Total cash costs per
      gold ounce(x)                  ($43)       $207        $304        $328
     Gold to Silver Ratio              62          78          63          81
     Realized Gold Price           $1,090        $802      $1,102        $775
     Realized Silver Price         $17.52      $10.26      $17.57       $9.53
     -------------------------------------------------------------------------
     Gold equivalent ounces
      produced (55:1)(xx)          47,903      55,267      16,104      18,499
     Total cash costs per
      gold equivalent ounce
      (55:1)(xx)                     $367        $340        $598        $433
     -------------------------------------------------------------------------

     -------------------------------------------------------------------------
                                                               CONSOLIDATED
     Three Months Ended                                       Dec         Dec
                                                            31/09       31/08
     -------------------------------------------------------------------------
     Gold ounces produced                                  37,066      43,768
     Silver ounces produced                             1,481,773   1,649,893
     Gold equivalent ounces
      produced (Realized)                                  60,921      64,889
     Gold ounces sold                                      38,249      41,004
     Silver ounces sold                                 1,509,511   1,534,318
     Gold equivalent ounces
      sold (Realized)                                      62,462      60,662
     -------------------------------------------------------------------------
     Total cash costs per
      gold equivalent ounce(x)                               $444        $413
     Total cash costs per
      gold ounce(x)                                           $33        $234
     Gold to Silver Ratio                                      62          79
     Realized Gold Price                                   $1,093        $796
     Realized Silver Price                                 $17.54      $10.05
     -------------------------------------------------------------------------
     Gold equivalent ounces
      produced (55:1)(xx)                                  64,007      73,766
     Total cash costs per
      gold equivalent ounce
      (55:1)(xx)                                             $422        $364
     -------------------------------------------------------------------------

     (x)  Cash costs for the three-month and the twelve-month period of 2009
          have not been finalized and are subject to adjustment
     (xx) Comparative performance metrics using the Company's long term gold
          equivalency guidance ratio (55:1)


     Year Ended December 31, 2009 Production Highlights
     --------------------------------------------------
     (all amounts are in U.S. dollars)

     -------------------------------------------------------------------------
                                         OCAMPO                  EL CUBO
     Year Ended                       Dec         Dec         Dec         Dec
                                    31/09       31/08       31/09       31/08
     -------------------------------------------------------------------------
     Gold ounces produced         108,705     115,656      27,842      38,772
     Silver ounces produced     3,998,850   3,995,725   1,183,339   1,783,149
     Gold equivalent ounces
      produced (realized)         168,993     182,399      45,578      69,111
     Gold ounces sold             105,818     112,682      27,185      37,964
     Silver ounces sold         3,976,304   3,867,178   1,170,280   1,739,361
     Gold equivalent ounces
      sold (realized)             166,071     177,404      44,782      67,624
     -------------------------------------------------------------------------
     Total cash costs per
      gold equivalent ounce(x)       $417        $491        $627        $623
     Total cash costs per
      gold ounce(x)                   $95        $269        $389        $441
     Gold to Silver Ratio              66          59          66          58
     Realized Gold Price             $977        $866        $983        $855
     Realized Silver Price         $14.90      $14.66      $14.94      $14.67
     -------------------------------------------------------------------------
     Gold equivalent ounces
      produced (55:1)(xx)         181,411     188,306      49,357      71,193
     Total cash costs per
      gold equivalent ounce
      (55:1)(xx)                     $389        $476        $579        $605
     -------------------------------------------------------------------------

     -------------------------------------------------------------------------
                                                               CONSOLIDATED
     Year Ended                                               Dec         Dec
                                                            31/09       31/08
     -------------------------------------------------------------------------
     Gold ounces produced                                 136,547     154,428
     Silver ounces produced                             5,182,189   5,778,874
     Gold equivalent ounces
      produced (realized)                                 214,571     251,510
     Gold ounces sold                                     133,003     150,646
     Silver ounces sold                                 5,146,584   5,606,539
     Gold equivalent ounces
      sold (realized)                                     210,852     245,038
     -------------------------------------------------------------------------
     Total cash costs per
      gold equivalent ounce(x)                               $462        $528
     Total cash costs per
      gold ounce(x)                                          $155        $313
     Gold to Silver Ratio                                      66          59
     Realized Gold Price                                     $978        $864
     Realized Silver Price                                 $14.91      $14.66
     -------------------------------------------------------------------------
     Gold equivalent ounces
      produced (55:1)(xx)                                 230,769     259,498
     Total cash costs per
      gold equivalent ounce
      (55:1)(xx)                                             $430        $512
     -------------------------------------------------------------------------

     (x)  Cash costs for the three-month and the twelve-month period of 2009
          have not been finalized and are subject to adjustment
     (xx) Comparative performance metrics using the Company's long term gold
          equivalency guidance ratio (55:1)

About Gammon Gold

Gammon Gold Inc. is a Nova Scotia based mid-tier gold and silver producer with properties in Mexico. The Company's flagship Ocampo Project in Chihuahua State achieved commercial production in January 2007. Gammon Gold also operates its El Cubo operation in Guanajuato State and has the promising Guadalupe y Calvo development property in Chihuahua State.

Cautionary Statement

Cautionary Note to US Investors - The United States Securities and Exchange Commission permits US mining companies, in their filings with the SEC, to disclose only those mineral deposits that a company can economically and legally extract or produce. This press release uses certain terms, such as "measured," "indicated," and "inferred" "resources," that the SEC guidelines strictly prohibit US registered companies from including in their filings with the SEC. US Investors are urged to consider closely the disclosure in Gammon Gold's Annual Report on Form 40-F/A, which may be secured from Gammon Gold, or from the SEC's website at http://www.sec.gov/edgar.shtml.

No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein.

Certain statements included herein, including information as to the future financial or operating performance of the Company, its subsidiaries and its projects, constitute forward-looking statements. The words "believe", "expect", "anticipate", "contemplate", "target", "plan", "intends", "continue", "budget", "estimate", "forecast", "may", "will", "schedule" and similar expressions identify forward-looking statements. Forward-looking statements include, among other things, statements regarding targets, estimates and assumptions in respect of gold and silver production and prices, operating costs, results and capital expenditures, mineral reserves and mineral resources and anticipated grades, recovery rates, future financial or operating performance, margins, operating and exploration expenditures, costs and timing of the development of new deposits, costs and timing of construction, costs and timing of future exploration and reclamation expenses including, anticipated 2009 and 2010 results, operating performance projections for 2009 and 2010, our ability to fully fund our business model internally, 2009 and 2010 gold and silver production and the cash and operating costs associated therewith, the ability to achieve productivity and operational efficiencies, further reduction in the open pit stripping ratio and the timing of each thereof. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by the Company, are inherently subject to significant business, economic, competitive, political and social uncertainties and contingencies. Many factors could cause the Company's actual results to differ materially from those expressed or implied in any forward-looking statements made by, or on behalf of, the Company. Such factors include, among others, known and unknown uncertainties and risks relating to additional funding requirements, reserve and resource estimates, commodity prices, hedging activities, exploration, development and operating risks, illegal miners, political and foreign risk, uninsurable risks, competition, limited mining operations, production risks, environmental regulation and liability, government regulation, currency fluctuations, recent losses and write-downs, restrictions in the Company's loan facility, dependence on key employees, possible variations of ore grade or recovery rates, failure of plant, equipment or process to operate as anticipated, accidents and labour disputes. Investors are cautioned that forward-looking statements are not guarantees of future performance and, accordingly, investors are cautioned not to put undue reliance on forward-looking statements due to the inherent uncertainty therein.

For further information: Rene Marion, Chief Executive Officer, Gammon Gold Inc., +1-416-646-3825; Anne Day, Director of Investor Relations, Gammon Gold Inc., +1-902-468-0614; http://www.gammongold.com

SOURCE Gammon Gold Inc.