<!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin-top:0in; mso-para-margin-right:0in; mso-para-margin-bottom:10.0pt; mso-para-margin-left:0in; line-height:115%; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin; mso-bidi-font-family:"Times New Roman"; mso-bidi-theme-font:minor-bidi;} </style> <![endif]-->

Excerpt from Mike Kachanovsky (stock news letter writer):

Last week I flew down to northern Mexico to tour the Guadalupe project with First Mexican Gold. This is an early stage exploration project in the midst of several large mines located near the Sonora-Chihuahua border. The area is characterized by rugged hills with one major paved road running through, and secondary access routes are gravel roads. This limited infrastructure to the region is part of the story for how some extremely attractive discovery areas have been largely overlooked this late in the bull market cycle, but it also represents an opportunity now that juniors like FMG are becoming more active in the region. The closest major city is Hermosillo, located about four hours to the west of the property area.

Guadalupe is 15,000 hectares in size, comprising a large land area around two historic mines in the region. Several smaller independent mine claims remain in private ownership, and a few larger blocks are controlled by other Canadian exploration companies. FMG has worked to consolidate the ownership of a major trend cutting to the northwest, and recently closed a deal with junior miner Kootenay Gold for a JV on an adjoining property that also lies on trend. The bottom line is that the company is on to a gold-silver discovery and has locked up most of the prospective land holdings before they went ahead and started exploration.

In close proximity to this project there are several established mines. Ocampo (Aurico) and Mulatos (Alamos Gold) are two newly developed and highly productive mines, and El Sauzel (Goldcorp) and Pinos Altos (Agnico-Eagle) are also located within the district. A handful of smaller juniors are also advancing discovery programs nearby. Suffice to say that there was a highly active geologic system on a district scale in the region that has put in place the conditions to allow for large mineral deposits.

This is very encouraging then, given the amount of surface alteration that has already been encountered at Guadalupe. Several distinct mineralized zones have already been sampled in surface outcrops on the property, occurring as a well-defined trend. Typical for most Mexican surface deposits, the higher grade zones were mined out by historic activity, but the lower grade disseminated alteration remains in place. This lower grade material is highly profitable to mine under the right circumstances and that is what FMG is working to prove up.

I visited the Karen target, a broadly distributed outcrop along a hillside with clear alteration exposed for more than 50m at a road cut. There were also smaller historic workings driven into the hillside. About 100m further downslope a larger historic mine adit exists, where extremely high grade narrow veins were mined. Sampling has yielded kilo-silver so it not part of the disseminated breccias near the higher elevations, but it could be a feeder zone to a larger system.
Breccias are very common and important deposit areas in Mexico. They are formed when a corridor of smashed rock fragments, usually related to a fault or shear zone, are penetrated by heated mineralized fluids that circulate in gaps and combine with the host rock to form new minerals. These altered zones can extend along a very large mass and depending on the intensity of the conditions, become extremely enriched deposit zones.
FMG has completed drilling at Karen earlier this year and came up with several drill cores bearing multi-gram gold values across tens of meters of core length. High grade silver was also encountered in some of the holes. That would be exactly the kind of grades and intercepts that could establish a deposit at Karen, and as more drilling continues the company is working to extend the strike length and probe further to depth. Even though a relatively small area has been tested by drilling so far, the results clearly show wide zones of alteration exist, and that the high grades of sampling reported earlier are not just surface enrichment. Because the showing is already accessed by a gravel road, and commences right from surface, if a large resource is proven up it would likely have economic value for development.

Several other similar targets have already been defined at Guadalupe. The Diana target is also a broad zone of disseminated breccia outcropping along the top of a ridge system, and has been mapped for more than 450 meters at surface. Gold grades range above a gram per tonne and some extremely high grade values have also been encountered. This is the kind of 'footprint' for a system that could rapidly evolve into a large discovery if the same mineralization extends further to depth. There is also evidence for parallel structures in the next round of hills, and perhaps some lateral displacement due to faulting may open the door for further extension to be discovered as more work is done to explore the property.

I was able to visit several large outcrop targets, most of which have not been drill tested yet. Each of these targets has potential to host a million ounces or more of gold depending on the distribution of the alteration. If FMG can even prove up several deposit zones of a few hundred thousand ounces each in proximity it would appear to warrant serious development potential.

One other appealing possibility for Guadalupe is for a major porphyry style deposit at depth. Adjacent to the property there is evidence for a porphyry system currently under exploration by another junior. These systems tend to occur in clusters and the intensity of the geologic activity in the region certainly supports the interpretation that a porphyry target may exist further to depth. No drilling at Guadalupe has gone below 230 meters so far, due to limitations on the company drilling rig, but some porphyrytic alteration has been encountered in these shallow holes. This could be related to smaller dike structures, or it could be just the near surface expression of a much larger target.

There are also many areas of the property that have not even been mapped or sampled yet. Old workings and surface showings have been frequently encountered as the scope of exploration expands beyond the currently defined targets. New road access is being pushed into the lateral reaches of the property and road cuts frequently expose previously unknown showings and veins.

For reference, Alamos Gold is mining very similar deposits in terms of grade and mineralization at Mulatos and the company continues to outline and define large new zones at its cluster of open pits for that large mine. Guadalupe has many characteristics that suggest it has the same upside potential and attractive development parameters.

FMG was able to raise cash when they launched their IPO last year and some of that money went towards establishing a modern base camp on the property, along with a core shack. About 40 kilometers of roads have already been driven to several target areas to open up exploration access. The company uses a leased drill rig staffed by employees to lower drilling costs.

The stock is currently trading at a very low market cap and the company has not gained much analyst attention so far. I think this could change very quickly. I think what is needed to ignite this stock is a string of drill holes at just one target to demonstrate high grade results to depth, and along a significant strike length. The company plans to do some systematic drilling at Diana in the months ahead and that has a great potential to deliver such results. The catalysts for a move higher may also include a potential breakthrough discovery at one of the nearby active exploration projects in the district, or perhaps a merger transaction with another junior elsewhere in the district.

I am a shareholder of FMG, as part of a diversified portfolio of junior exploration companies. I think the stock has plenty of upside and expect that some discovery success will come as more work is done at the property. I have not received any compensation for my time to tour this project, although some of my travel expenses were paid by the company. My comments and opinions are based on my own personal observations and a review of the documents and news releases that have been disclosed by the company.

This report is not intended as investment advice. Every effort has been made to ensure accuracy but there may be some errors or inaccuracies and readers must bear the responsibility for their own due diligence and decisions.

Mike Kachanovsky
November 23, 2011