Goldsource Mines Inc. (TSX-V:GXS)  (OTCBB:GXSFF)  (FWB:G5M) today announced that throughput and production from the Eagle Mountain Gold Project in Guyana have been affected in July and August, primarily as a result of weather related issues, a delay in the shipment of a 40-tonne truck to site and the low grade of available material. Processing operations were suspended on July 23, 2016 to reduce consumable costs and focus on developing access to Pit #4 and preparing Pit #4 for open pit mining. Eagle Mountain is expected to begin processing higher-grade material from Pit #4 in early September 2016.

Since July 1, 2016, the Company has processed 13,922 tonnes over 19 days, with average throughput of 732 tonnes per day (“tpd”). During the same period, Goldsource poured 38 ounces of gold and sold 37 ounces of gold at an average price of US$1,336 per ounce. As a result, Eagle Mountain, during July and August, has performed below commercial production levels achieved June 20, 2016 (see news release dated June 21, 2016 and the Preliminary Economic Assessment report titled “Preliminary Economic Assessment of the Eagle Mountain Saprolite Gold Project, Guyana”, dated September 12, 2014 with an effective date of June 15, 2014.

In the first half of 2016, Management elected to shift focus from development of Pit #6 (with material designed to be transported by a gravity fed chute) to the higher grade and closer proximity Pit #4, which is at a lower elevation relative to the process plant, requiring the use of a truck to haul material. Management was originally expecting the delivery of a 40-tonne truck to site in late July to deliver higher-grade material from Pit #4 to the processing plant. A lack of tire availability and an error by the ground transportation freight forwarder resulted in a delay in the ground shipment, which significantly delayed the sea freight departure. The arrival of the truck in Guyana on August 23, 2016 has been confirmed, with an expected arrival on site in early September 2016.

During the commissioning phase of Eagle Mountain, the focus was on processing low-grade material during the optimization process. The plan was to continue to process lower-grade mineralization until higher-grade material could be exploited through the arrival of the 40-tonne truck to site. However, with the grade processed averaging just 0.43 grams per tonne (“g/t”) gold (below the 0.5 g/t cutoff grade for the Eagle Mountain resource) Management elected to stop processing material on July 23 to reduce the cost of onsite consumables and shift focus to developing access and mine preparation for the higher-grade material at Pit #4.

Unexpectedly heavier rainfall due to “La Nina” at Eagle Mountain has made road access challenging, which contributed to additional downtime in July and August. Fewer weather related issues are expected as we move into the drier months of September through March.

While Eagle Mountain has underperformed in July and August, the Company expects to return to commercial production levels in early September based on the following:

• Purchase and operation of a 15-tonne truck: With the start of the dry season in Guyana, the Company was able to procure and operate a 15-tonne truck to begin stockpiling the higher-grade material from the higher grade Pit #4. During dry weather this vehicle is capable of stockpiling 350-750 tpd. To date, the Company has stockpiled 5,913 tonnes of material from Pit #4. Once a sufficient higher-grade stockpile is built up, Management expects to resume processing operations prior to the arrival of the 40-tonne truck on site.
• With the 40-tonne truck onsite in early September 2016, a throughput of 1,250-1,500 tpd from Pit #4 to the processing plant should be achieved.

2016 Guidance

Weather and a delay in the delivery of the 40-tonne truck procured in Q2, 2016 have impacted operations in Q3, 2016. In addition, Management has also applied for a permit from the Government of Guyana to operate a low impact intensive cyanide leaching circuit at Eagle Mountain, which is expected to substantially improve gold recovery and production from the mine. While the permit was originally expected in July 2016, to allow the SLR unit to be operational by October 2016, the permit has not yet been granted and there is no firm date for its issuance. As a result, the Company has revised its targets and assumptions previously announced in its news release dated June 21, 2016 as follows:

• The Company anticipates a total production of approximately 1,400-2,100 ounces of gold for 2016, down from the previous guidance of 3,600 ounces of gold in 2016. The revised production forecast is based on the following:
  • Average throughput of 1,000 tpd in September, ramping up to 1,500 tpd from October to December 2016, down from the previous guidance of 1,800 tpd.
  • Average gravity gold recovery of 50%. With an average table recovery of 50-60%, resulting in a net recovery to dore of 25-30%.
  • Mining focused on low strip higher grade material in Pit #4 to increase the average grade and gold production.

Outlook

While the Company has reduced its 2016 production guidance, the phased expansion approach to Eagle Mountain remains intact. The throughput expansion plan and the contemplation of integrating an SLR unit into the process flow sheet warrants completion of a pre-feasibility study by H1 2017. Management’s expects the PFS to support the design, purchase and deployment of the Phase II plant, which should increase throughput capacity to approximately 4,000 tpd. The Company expects to achieve this expansion through the implementation of the following:

Night shift: A second (night) shift is to be phased in during the latter part of Q3, 2016.

• Phase II Plant: A second modified scrubber is to be added to the Phase II Plant and the current falcon concentrators are to be doubled from 2 to 4 units.
• Management is optimistic that the total cost of the Phase II expansion could be achieved for less than the US$18.3 million total capital budget outlined in the PEA (see news release dated August 1, 2014).

The Company continues to evaluate opportunities to improve recoveries and the average head grade at Eagle Mountain to increase production prior to the Phase II expansion. Opportunities include:

• Pit #4: Management expects to start processing material from Pit 4 in early September 2016. The average grade of the material in Pit #4 is estimated to average 1.4 g/t gold. Goldsource has procured a 15-tonne truck, which is currently onsite building a stockpile from Pit #4 with the larger 40-tonne articulating truck expected to arrive onsite in early September 2016.
• SLR unit: Management has been evaluating the potential to install an SLR unit to process the gravity gold concentrate and significantly improve the overall gold recovery. Goldsource began the permitting process in May 2016. If the Company obtains this permit, Goldsource would look to expedite the installation of the system to improve recovery and production and treat and recover gold from the onsite inventory of stockpiled table concentrate.
• Sluice Box: A small sluice box has been installed to capture coarse gold before it flows into tailings. A substantially larger sluice box is under construction and is expected to be installed before the end of Q3, 2016. To date, the small sluice box is adding incremental recovery 0.5-1%. Management believes that the new expanded sluice box should increase the incremental recovery by up to 5%.

With Eagle Mountain expected to begin processing the higher-grade material from Pit #4, a significant improvement in production is expected, with potential for a material improvement in production and operating margins should a permit for an SLR unit be granted.

ABOUT GOLDSOURCE MINES INC.

Goldsource Mines Inc. (www.goldsourcemines.com) is a Canadian resource company that has recently achieved commercial production for Phase I at it 100%-owned Eagle Mountain Gold Project, located in Guyana. Goldsource is led by an experienced management team, proven in making exploration discoveries and in project construction.