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AM Gold And Capella Enter Into Letter Of Intent To Combine

January 18, 2011

AM Gold Inc. (“AM Gold”) - (TSX-V: AMG; Frankfurt: AMX) and Capella Resources Ltd. (“Capella”) – (TSX-V: KPS) announce that they have entered into a binding letter of intent (the “Letter of Intent”) to combine the two companies by way of statutory Plan of Arrangement (the “Arrangement”) or other statutory procedure (the “Transaction”).  The final terms of the Transaction have not been reached and negotiations are continuing.

The Transaction is subject to a number of conditions and approvals, including, but not limited to, satisfactory due diligence, settlement of a definitive agreement (the “Definitive Agreement”), shareholder approval required by applicable law or as otherwise determined by the respective Board of Directors, an order of the Supreme Court of British Columbia with respect to Arrangement matters and approval of the TSX Venture Exchange.

Capella has agreed not to solicit or initiate any discussion concerning the pursuit of any other business combination for the term of the Letter of Intent which terminates on February 3, 2011 unless replaced by the Definitive Agreement.  A termination fee of $250,000 is payable to AM Gold in certain circumstances.  In addition, AM Gold has the right to match any competing proposal in the event a competing proposal is made.

There can be no assurance that the Transaction will be completed as proposed or at all.  The companies will use their best efforts to settle and execute the Definitive Agreement by February 3, 2011 (the “Definitive Agreement Execution Date”) and to close the Transaction within 90 days of the Definitive Agreement Execution Date.

Richard Bachman, President and CEO of Capella stated:  “Combining with AM Gold will help unlock shareholder value in Capella’s assets and I look forward to working with AM Gold’s seasoned team.”

“We are pleased with this development in the evolution of AM Gold and we look forward to working with Capella to build a combined company which will have a strong balance sheet, with a diverse portfolio of advanced exploration projects ” remarked Mark Lawson, CFO of AM Gold. “Capella’s assets in the Maricunga Gold District of northern Chile meet our corporate strategy of adding quality precious metals (gold) projects to our portfolio of exploration properties.”

About AM Gold Inc.

AM Gold Inc. is a publicly held resource company based in Vancouver, Canada.  The Company is listed on the TSX Venture Exchange under the symbol “AMG” and is quoted on the Frankfurt Exchange under the symbol “AMX".  The Company is focused on creating shareholder value through the development of the Company's flagship gold and gold-copper projects in the Yukon and Peru while building a portfolio of quality pipeline projects in North and South America.  The Company's Red Mountain gold property is located in central Yukon Territory approximately 55 kilometres northwest of the community of Mayo in the Tintina Gold Belt.  AM Gold holds an 80% interest in Red Mountain with an option to acquire 100% ownership of the 52 contiguous claims that constitute the property and cover approximately 1,168 hectares.  AM Gold's Pinaya gold-copper project is located approximately 775 kilometres southeast of the city of Lima, Peru in the Tintaya Gold Belt.  The Company maintains 100% ownership of 35 mining concessions covering the 19,200 hectare Pinaya land position.  AM Gold’s corporate offices are located Suite 305 – 369 Terminal Avenue, Vancouver, British Columbia, V6A 4C4 (phone: 604-646-0067)

About Capella Resources Ltd.

Capella Resources Ltd. is a publicly traded, junior exploration and mineral development company with a strong portfolio of precious and base metal projects in Chile, USA and Atlantic Canada.  Capella has a 100% interest in the Lajitas and Nevada gold-copper properties located in the Maricunga Gold and Copper District and approximately 700 kilometres northwest of Santiago, Chile.  The properties comprise ten exploration claims and six exploitation claims totalling a cumulative 3,500 hectares in area. Capella holds a 100% interest in the Tinton Gold Project located 15 kilometres west-northwest of the famous and historic Homestake Mine in the Black Hills at Lead, South Dakota. The Tinton property consists of 1,270 hectares contained in 157 unpatented mining claims. The Company also holds 2,834 mineral exploration claims covering an aggregate land area of over 50,879 hectares in Atlantic Canada (Nova Scotia, New Brunswick and Newfoundland and Labrador).  Capella’s head office is located at 108F Trider Crescent, Dartmouth, Nova Scotia, B3B 1R6 (phone:  902-468-8280).

For More Information

For further information on AM Gold, please contact David Yeager at Progressive IR Consultants Corporation at 604-689-2881 or by email at , or visit AM Gold’s website at: http://amgold.ca

For further information on Capella, please contact Mike McCleave at 902-468-8280 or toll free at 1-877-342-7474, or visit Capella’s website at: http://www.capellaresources.com.

On behalf of the Board of AM Gold Inc.

(signed) "Mark Lawson"
Mark Lawson

On behalf of the Board of Capella Resources Ltd.

(signed) “Richard Bachman”
Richard Bachman
President and CEO

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

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© Copyright AM Gold Inc. 2011