Cayo to Amalgamate With Pure Gold Resources Inc.

VANCOUVER, BRITISH COLUMBIA--(BUSINESS WIRE)--Sept. 2, 1997--CAYO RES.(OTC Bulletin Board CAYO) Cayo Resources Inc. announced today that it has agreed to merge with Pure Gold Resources Inc. (PUG.T), a TSE-listed company at arm's length to Cayo, by way of amalgamation. Pure Gold and Cayo both have interests in areas adjacent to Ashton Mining's recent diamond discoveries in Alberta, as well as in other areas of Alberta. The amalgamation will increase Cayo's net beneficial acreage in Alberta from approximately 16 million to over 31 million acres.

Each five issued and outstanding Pure Gold Shares will be exchanged for one share of the amalgamated company, and each five issued and outstanding Cayo Shares shall be exchanged for three shares of the amalgamated company. This ratio, verified by an independent fairness opinion, will result in an effectively-consolidated amalgamated company with approximately 24 million outstanding shares, of which approximately 19 million shares, or 79.5 percent, will represent former Pure Gold shares, and approximately 5 million shares, or 20.5 percent, will represent former Cayo shares. The amalgamated company is to be named "Pure Gold Minerals Inc." Shareholders of both companies will vote on the amalgamation at Extraordinary General Meetings to be held in early October, 1997.

Shareholders of Pure Gold and Cayo will also be asked to approve a Rights Offering to be conducted immediately following completion of the amalgamation. Details of the Rights Offering proposal will be included in the Information Circular to be mailed to shareholders of both companies and will be announced when pricing has been determined.

The amalgamated company's Board of Directors will be comprised primarily of Pure Gold's existing Board and Management, with the addition of Wilfred D. Jones, formerly Diamond Consultant with Ashton Mining of Australia and previously with Selection Trust of London, as Chief Geologist.

The amalgamated company will represent the combined interests of Pure Gold and Cayo which, in addition to Pure Gold's Northwest Territories holdings, will include the following:

-- 15 percent interest in the Buffalo Hills Property, site of the discovery of 16 kimberlite bodies to date, and subject to a joint venture with Ashton Mining and Alberta Energy (42.5 percent interest each), comprising 1.5 million acres;

-- 15 percent interest in the Birch Mountain Property, subject to a joint venture with Ashton Mining and Alberta Energy (42.5 percent interest each), comprising 4.4 million acres;

-- 49 percent interest in the Caribou Hills Property, surrounding the Birch Mountain and Buffalo Hills properties, subject to a joint venture with Ashton Mining and Alberta Energy (25.5 percent interest each), comprising 22.8 million acres;

-- 100 percent interest in the Edmonton Property straddling the North Saskatchewan River from approximately lake Wabamun to the Saskatchewan border, site of the discovery in 1993 of a 0.392 carat diamond in river gravels, but otherwise unexplored for diamonds, comprising 9.3 million acres;

-- 75 percent interest in the Lethbridge Property, previously unexplored for diamonds, comprising 10.1 million acres.

The Boards of Directors of Pure Gold and Cayo have unanimously approved the proposed Amalgamation for the following reasons:

-- The interests of the amalgamated company in the Alberta diamond play will be much larger than those of the individual companies with combined interests in the Caribou Hills, Lethbridge, and Edmonton properties of 49 percent, 75 percent and 100 percent respectively; and

-- Cayo will almost double its net beneficial acreage in diamond exploration properties in Alberta;

All of the foregoing transactions are subject to Pure Gold's receipt of a letter of no objection from each of Ashton Mining and Alberta Energy, regulatory acceptance including the approval of The Toronto Stock Exchange, and shareholder approval.

CONTACT: Cayo Resources Inc.

Hendrik van der Walt, 604/ 687-0300