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|This study examines the application of Landsat TM data to the identification of hydro- thermal alteration in the arid terrain of the El Salvador region of north Chile. Numerical reflectance values were extracted from the digital Landsat TM data for a variety of rock surfaces, including four parts of the El Salvador gossan, for each of six spectral bands. These reflectance values were analysed statistically in order to select the three spectral bands, combined as a colour composite image, that are most efficient in discriminating different varieties of alteration and for general geolog- ical interpretation. The most cost effective com- posite image for this area is a combination of bands 1,4 and 7 as the blue, green and red components respectively, with simple contrast enhancement. This image is superior to some much more expensive enhancement techniques and allows unambiguous identification of areas of hydrothermal alteration larger than about 50m. The display includes a practical guide to the use of Landsat TM imagery for volcanic gold Exploration.|