RNS Number:9339C
European Goldfields Ltd
15 May 2006
For Immediate Release 15 May 2006
RESULTS FOR Q1 2006 - FIRST PROFIT REPORTED
PRODUCTION RAMPING-UP AT STRATONI
RESERVES ANNOUNCED FOR CERTEJ PROJECT
GREEK GOVERNMENT POSITIVE ON BUSINESS PLANS FOR SKOURIES & OLYMPIAS
OFF-TAKE AGREEMENT SIGNED FOR OLYMPIAS CONCENTRATES
European Goldfields Limited (AIM: EGU / TSX: EGU) ("European Goldfields" or the
"Company") today reports its results for the first quarter to 31 March 2006.
Highlights during 2006 are:
Greece:
* Hellas Gold recorded sales of US$9.08 million and gross profits of
US$4.30 million in Q1 2006, from 4 shipments of Stratoni concentrates
* Underground production at Stratoni ramping-up from 400 tonnes per day
(tpd) in January to 610 tpd in April 2006
* Business plans submitted to the Greek government in January 2006, the
first major step in applying for permits to develop the major projects of
Skouries and Olympias
* Positive response on business plans received from Greek government,
endorsing Hellas Gold's holistic and phased approach to the development of
the Skouries and Olympias projects
* Off-take agreement signed for gold concentrates currently located on
surface at Olympias
Romania:
* Reserves announced for Certej project, confirming that the project can
produce a robust return at a gold price of $425/oz
* Environmental Impact Assessments completed; final feasibility study
underway for submission to the Romanian government by year end, in support
of permit application
Corporate:
* European Goldfields records first profit of US$1.04 million (before tax)
for Q1 2006; US$33.95 million in cash assets and financial instruments at 31
March 2006; funded through 2007 until the expected award of permits for
Olympias, Skouries and Certej
* Management team-building completed with appointments of Tim Morgan-Wynne
as CFO and Neil Hepworth as VP Operations
* Broadened shareholder base and improved share liquidity; appointed
Williams de Broe and RBC Capital Markets as brokers
Commenting on the results, David Reading, Chief Executive Officer of European
Goldfields, said: "We are proud to report our first profit before tax in Q1
2006, and we look forward to increasing our profitability as production
continues to ramp-up at Stratoni. We are also encouraged that the Greek
government acknowledged the merits of our business plans and confirmed that the
development of the Skouries and Olympias projects are in the best interest of
the Greek economy. In Romania, we have now published reserves for the Certej
project and defined a clear roadmap to permitting and project development, with
final feasibility studies well underway."
GREECE
Stratoni operations - During Q1 2006, 31,752 wet tonnes of ore were mined from
underground, 40,333 dry tonnes of ore were milled at the Stratoni plant and
9,884 tonnes of zinc and lead/silver concentrates were shipped and sold for
total revenues of US$9.08 million, for which European Goldfields' 65%-owned
subsidiary Hellas Gold S.A. ("Hellas Gold") reported a gross profit of US$4.30
million.
Ore production rates have steadily increased since the beginning of the year,
from 400 tonnes per day (tpd) in January to 610 tpd in April. Ore production is
on track to achieve 170,000 tonnes by year end, and is expected to increase
steadily thereafter up to a maximum of 400,000 tonnes per annum by year five.
Optimum recoveries of above 90% are now being achieved by the Stratoni plant.
In Q1 2006, the emphasis has been on rehabilitating and preparing sufficient
mining faces to achieve the planned production target. In January, accesses to
the orebody were opened on six levels. Further cleanup and rehabilitation work
was carried out on the down ramp that has allowed opening of additional accesses
on two additional levels. Work is also progressing in rehabilitating the 190m
level access to provide exploration drilling access for the west extension of
the orebody.
The first quarter also saw a substantial decrease in the inherited void
inventory, with most of the backfilling of mined-out areas completed in the
quarter using the coarse tailings from the milling process. To this end, a new
backfill pump was purchased and installed on the 240m level to allow efficient
tight filling of the operating levels above 252m level.
Cleaning and rehabilitation work at Madem Lakkos has continued to facilitate
backfill of the old workings, which will reduce future water pumping and
treatment costs and provide environmental benefits.
The trials of a filter press for producing filter cake from the fine portion of
the mill process tailings and water treatment residue has been shown to be
technically feasible and cost effective. The tender process is complete and
Hellas Gold should be able to begin dry stacking these fine tails by the fourth
quarter of 2006. In the meantime, Hellas Gold continues to store the tailings
slurry and water treatment sludge in the Chevalier pond.
Good progress has also been made on the new decline to the Mavres Petres
orebody, which is now 155 metres in, and through the bad ground associated with
the footwall fault zone and the weathered ground at the portal. The decline is
not necessary for mining in 2006 but becomes critical for the future production
ramp-up involving the deeper portions of the orebody, as well as providing
better ventilation and potential exploration upside.
Stratoni is a robust business with minimal capital investment due the extensive
existing infrastructure and also has well-defined reserves over a six-year life.
The project also has exciting exploration upside as the orebody is open in all
directions and the new decline is transgressing the zone between old, mined-out
areas and the current reserve of the Mavres Petres orebody.
The new decline has intersected lead and zinc sulphide mineralisation over a
true thickness of approximately 1.75 metres located some 1.5 kilometres to the
east and along strike from the Mavres Petres orebody. Significantly, this
mineralisation occurs within the same marble unit as the existing reserve and,
like the Mavres Petres orebody, is immediately adjacent to the Stratoni fault,
indicating the potential for further zones of mineralisation to occur along the
1.5 kilometre corridor formed by the marbles and the fault. This confirms
European Goldfields' current geological model for extensions to the Mavres
Petres orebody. This highly prospective corridor will be drill-tested later in
2006 by a drill programme conducted from the decline.
Skouries & Olympias business plans - In January 2006, Hellas Gold submitted
business plans to the Greek State for its major gold and base metal projects in
Northern Greece. This submission represents a significant milestone in obtaining
the permits for the Skouries and Olympias projects.
The business plans focus on a phased approach to the development of the projects
with emphasis on achieving full production at the Skouries gold-copper porphyry
deposit as soon as possible, and the phasing of the Olympias
gold-lead-zinc-silver deposit. This approach minimises financial risk by the
phased injection of capital. The principal revenue stream in the early phases
will be through the sale of concentrates.
In March 2006, Hellas Gold received an official response from the Greek Ministry
of Development (the "Ministry") on the business plans. The response states that
the Ministry is in agreement with the principles stated in the business plans,
and that the Ministry considers the business plans to be in the best interest of
the Greek economy. This response was received by Hellas Gold within the
timeframe provided for in its contract with the Greek State.
The response from the Ministry also has the benefit of providing a short-list of
the technical matters on which the Ministry would like some further
clarifications. A joint technical committee, with representatives from the
Ministry, Hellas Gold and European Goldfields, has been created to resolve these
matters in the context of Hellas Gold's ongoing work on a full environmental
impact study, which is expected to be submitted to the Greek government in Q3
2006. On approval of the study, the environmental permits for Skouries and
Olympias are expected to be issued.
Hellas Gold will then submit to the Greek government a final technical report on
the Skouries and Olympias projects, which will restate the principles of the
business plans and take into account any conditions detailed in the
environmental permit. The mining permits are expected to be issued on approval
of the technical report by the Greek government.
Ongoing feasibility work on Skouries and Olympias includes:
* The mine schedules and production plans, with sign-off from external
consultants including SRK for Skouries
* An Environmental Impact Study, carried out by the Greek consulting group
Enveco.
Sale of Olympias concentrates - In May 2006, Hellas Gold entered into an
off-take agreement with Shandong MIC BioGold Ltd (a subsidiary of Michelago
Limited of Australia (ASX: MIC)) for the initial sale of at least 18,000 wet
metric tonnes (wmt) of gold bearing pyrite concentrates currently located on the
surface at Olympias in Greece. The agreement also includes the possible sale of
an additional 100,000 dry metric tonnes of concentrates over a three-year period
from April 2007.
Olympias benefits from an existing stockpile of gold concentrates representing a
reserve of about 258,000 tonnes grading 23.3 g/t gold, in addition to
substantial underground reserves of gold, lead, zinc and silver.
The monthly shipments of the initial 18,000 wmt of concentrates are expected to
commence in May 2006 and end in April 2007, and may be suspended if certain
profitability thresholds are not met. Concentrates are to be treated at Shandong
MIC's Bacox process plant in China.
The price payable for the concentrates will vary with the prevailing gold price.
The agreement produces an attractive return for Hellas Gold at a gold price of
US$500/oz.
European Goldfields and Hellas Gold are currently pursuing other similar
opportunities for the sale of the remaining tonnage of concentrates in the
Olympias stockpile.
GIS study underway - European Goldfields has undertaken to capture digitally
into a geographical information system (GIS) all historical data on the licences
in northern Greece. This will comprise the compilation of all existing
geological and structural mapping, topographic, stream geochemistry, published
regional airborne magnetics and historic drilling into a single digital
database. In addition to compiling existing data, European Goldfields will
acquire and process new satellite imagery over the Greek licences. The GIS
database and the satellite imagery will mainly be used to refine the location
and limits of existing targets along the known fault controlled corridors of
marble hosted massive sulphides and northwest trending porphyry belt. The GIS
database will also identify areas for further investigation by remote sensing
methods, in order to generate new targets of similar mineralisation styles to
Stratoni, Olympias and Skouries.
ROMANIA
Reserves announced for Certej project - In April 2006, European Goldfields
announced the conversion of resources into Canadian NI 43-101 compliant reserves
for its 80%-owned Certej project in the Southern Apuseni Mountains of Romania.
The reserve estimation was carried out by independent consultants RSG Global Pty
Ltd ("RSG Global") and can be summarised as follows:
+----------+---------+--------------+-----------+---------------+-------------+
|Reserve | Million | Average Gold | Million | Average Siver | Million |
|Category | Tonnes | Grade (g/t) |Ounces Gold| Grade (g/t) |Ounces Silver|
+----------+---------+--------------+-----------+---------------+-------------+
|Probable | 27.7 | 2.0 | 1.76 | 11.6 | 10.35 |
+----------+---------+--------------+-----------+---------------+-------------+
Note: Lower cut-off grade of 0.8 g/t gold. Uniform conditioning and based on a
selected mining unit model using 6.25 X 12.5 X 2.5 metre blocks.
The reserve was estimated at a gold price of $425/oz and a silver price of $7/
oz, and is based on the sale of gold rich concentrates. The estimation follows
the completion of extensive metallurgical testwork, an in-house pre-feasibility
study and subsequent pit optimisation and pit design work by RSG Global, which
included a geotechnical drilling programme designed by Golders Associates of the
UK. These studies resulted in:
* Confirmation that a flotation concentrate can be produced with high gold
grades and recoveries
* An open pit with a low strip ratio of 2.6:1
* The definition of sites for infrastructure and tailings disposal
* A clear understanding of all work required to complete environmental
studies and achieve all necessary permitting.
It is envisaged that the project could mine and process 3.0 Mt per annum over at
least nine years. At the proposed production rates, this would yield
approximately 249,000 tonnes of concentrate per annum with grades averaging 21 g
/t gold and 125 g/t silver, with a flotation gold recovery of approximately 88%.
This translates into an annual production of approximately 170,000 oz of
contained gold in the concentrate.
The conversion of resources into reserves means that the project can support the
necessary capital investment and produce a robust return at a gold price of $425
/oz and above.
On-site production of gold dore being investigated - European Goldfields is also
actively reviewing other development options to progress the Certej project
forward, such as confirming a process route for producing gold dore on site.
Of the available techniques, the Albion Process followed by cyanidation is
considered the most promising. The Albion process is a combination of ultra-fine
grinding and oxidatative leaching at atmospheric pressure. Hydrometallurgy
Research Laboratories of Australia has completed Stages I and II of a
metallurgical testwork programme utilising the Albion Process from samples of
flotation concentrates produced from Certej ore. The results indicate that the
concentrate can be economically processed by the Albion Process to produce gold
dore on site, with recoveries of gold and silver averaging approximately 84% and
93% respectively.
European Goldfields expects to report on the results of a Stage III pilot plant
scale continuous metallurgical testwork programme, and publish Canadian NI
43-101 compliant reserves based on the Albion process later in Q2 2006.
Final feasibility study underway - European Goldfields has completed the
necessary Environmental Impact Assessments (EIA Levels I and II) for the Certej
project. The next stage will be to complete an Environmental Impact Study (EIS)
in order to progress to full feasibility study and permit application by year
end. ECOIND, a Romanian company with a well-proven track record in environmental
research and permitting procedures, have been employed to assist in this
process. Cepromin, a Romanian company, has been commissioned to assist in
producing the feasibility study and supporting documents.
Generative study initiated - European Goldfields has initiated a generative
study on its licensed areas in Romania by engaging the services of an
internationally renowned expert in structural controls and epithermal
mineralisation. The work will comprise a field visit and review of all
exploration data. The objective of the work is to develop existing geological
models and identify drill targets along extension zones to known mineralisation
and possible blind targets.
For further information please contact:
European Goldfields: e-mail: info@egoldfields.com
David Reading, Chief Executive Officer website: www.egoldfields.com
Office: +44 (0)20 7408 9534
Buchanan Communications: e-mail: bobbym@buchanan.uk.com
Bobby Morse / Ben Willey
Office: +44 (0)20 7466 5000
Mobile: +44 (0)7802 875 227
The Sherbourne Group: e-mail: forbes@sherbournegroup.ca
Forbes West
Office: +1 416 203 2200
Resources & reserves parameters
For additional information on the resource and reserve estimates quoted in this
news release, please refer to the Company's Resources & Reserves Declaration at
www.egoldfields.com/goldfields/resources.jsp.
Patrick Forward, General Manager, Exploration of the Company, was the Qualified
Person under Canadian National Instrument 43-101 responsible for reviewing the
disclosure of resource and reserve estimates quoted in this news release.
Forward-looking statements
Certain information included in this news release, including any information as
to the Company's future financial or operating performance and other statements
that express management's expectations or estimates of future performance,
constitute "forward-looking statements". The words "expect", "will", "intend",
"estimate" and similar expressions identify forward-looking statements.
Forward-looking statements are necessarily based upon a number of estimates and
assumptions that, while considered reasonable by management, are inherently
subject to significant business, economic and competitive uncertainties and
contingencies. The Company cautions the reader that such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual financial results, performance or achievements of the
Company to be materially different from its estimated future results,
performance or achievements expressed or implied by those forward-looking
statements and the forward-looking statements are not guarantees of future
performance. These risks, uncertainties and other factors include, but are not
limited to: changes in the worldwide price of gold, base metals or certain other
commodities (such as fuel and electricity) and currencies; the successful and
timely permitting of the Company's Skouries, Olympias and Certej projects;
legislative, political, social or economic developments in the jurisdictions in
which the Company carries on business; operating or technical difficulties in
connection with mining or development activities; the speculative nature of gold
and base metals exploration and development, including the risks of diminishing
quantities or grades of reserves; and the risks normally involved in the
exploration, development and mining business. These factors are discussed in
greater detail in the Company's Annual Information Form for the year ended 31
December 2005, filed on SEDAR at www.sedar.com. The Company disclaims any
intention or obligation to update or revise any forward-looking statements
whether as a result of new information, future events or otherwise.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE-MONTH PERIOD ENDED 31 MARCH 2006
The following discussion and analysis, prepared as at 15 May 2006, is intended
to assist in the understanding and assessment of the trends and significant
changes in the results of operations and financial conditions of European
Goldfields Limited (the "Company"). Historical results may not indicate future
performance. Forward-looking statements are subject to a variety of factors that
could cause actual results to differ materially from those contemplated by these
statements. The following discussion and analysis should be read in conjunction
with the Company's unaudited consolidated financial statements for the
three-month periods ended 31 March 2006 and 2005 and accompanying notes (the
"Consolidated Financial Statements").
Additional information relating to the Company, including the Company's Annual
Information Form, is available on the Canadian System for Electronic Document
Analysis and Retrieval (SEDAR) at www.sedar.com.
Except as otherwise noted, all dollar amounts in the following discussion and
analysis and the Consolidated Financial Statements are stated in United States
dollars.
Overview
The Company, a company incorporated under the Yukon Business Corporations Act,
is a resource company involved in the acquisition, exploration and development
of mineral properties in Greece, Romania and the Balkans.
The Company's Common Shares are listed on the AIM Market of London Stock
Exchange plc and on the Toronto Stock Exchange (TSX) under the symbol "EGU".
Greece - The Company holds a 65% interest in Hellas Gold S.A. ("Hellas Gold").
Hellas Gold owns assets in northern Greece which consist of three deposits
within 70-year mining concessions covering a total area of 317 km(2). The
deposits include the polymetallic projects of Stratoni and Olympias which
contain gold, lead, zinc and silver, and the copper/gold porphyry body referred
to as Skouries. All three deposits have been well defined with over 200,000
metres of drilling and the completion of feasibility studies and later
engineering studies.
The total proven and probable reserves of these assets are 7.6 Moz gold, 65.8
Moz silver, 0.7 Mt copper,
0.7 Mt lead and 0.9 Mt zinc, from a measured and indicated resource base of 9.4
Moz gold, 74.5 Moz silver, 1.0 Mt copper, 0.8 Mt lead and 1.1 Mt zinc (65%
attributable).
These assets represent some of the largest defined deposits in Europe. The three
deposits are located within a 10 km radius of each other, making this
effectively a gold and base metals centre. Furthermore, both Stratoni and
Olympias were previously in production and have extensive existing mining and
plant infrastructure and a ship-loading facility on the Aegean Sea.
Hellas Gold's assets also include revenue-generating stockpiles of gold
concentrates.
In September 2005, Hellas Gold resumed production at Stratoni following the
award by the Greek State of all necessary environmental and mining permits.
Hellas Gold is in the process of applying for similar permits for Olympias and
Skouries, having met its first milestone by submitting business plans to the
Greek government in January 2006.
Romania - The Company holds four mineral properties located within the "Golden
Quadrilateral" area of Romania. The Company recently announced the conversion of
resources into Canadian National Instrument 43-101 compliant reserves for its
80%-owned Certej project, underpinning the value of the project. The Certej
deposit hosts probable reserves of 27.7 Mt grading 2.0 g/t gold and 11.6 g/t
silver for 1.76 Moz gold and 10.35 Moz silver (80% attributable). The Company is
now completing a final feasibility study for submission to the Romanian
government by the end of 2006, in support of an application for environmental
and mining permits to develop the Certej project.
Results of operations
The Company's results of operations for the three-month period ended 31 March
2006 were comprised primarily of activities related to the results of operations
of the Company's 65%-owned subsidiary Hellas Gold in Greece and the Company's
regional exploration programs in Romania. The Company currently incurs losses
and until significant revenues are generated, the Company will continue to do
so.
In September 2005, Hellas Gold commenced production at its Stratoni mine in
Greece. The following table summarises operational results at Stratoni for the
three-month period ended 31 March 2006.
Stratoni Mine (Greece)
Three-month period
ended
31 March 2006
Inventory (start of period)
Ore mined (wet tonnes) 10,963
Zinc concentrate (tonnes) 95
Lead/silver concentrate (tonnes) 1,268
Production
Ore mined (wet tonnes) 31,752
Ore milled (tonnes) 40,333
- Average grade: Zinc (%) 8.89
Lead (%) 7.28
Silver (g/t) 183.45
Zinc concentrate (tonnes) 6,222
- Containing: Zinc (tonnes) 3,229
Lead concentrate (tonnes) 3,662
- Containing: Lead (tonnes) 2,667
Silver (kg) 6,454
Sales
Zinc concentrate (tonnes) 5,283
- Containing payable: Zinc (tonnes)* 2,335
Lead concentrate (tonnes) 4,623
- Containing payable: Lead (tonnes)* 3,166
Silver (kg)* 7,855
Operating costs per tonne milled ($) 96
Operating costs per unit of payable:
- Zinc ($) 744
- Lead ($) 496
- Silver ($) 130
Inventory (end of period)
Ore mined (wet tonnes) 1,155
Zinc concentrate (tonnes) 1,034
Lead/silver concentrate (tonnes) 307
Financial information (in
thousands of US dollars)
Sales ($) 9.083
Gross profit ($) 4,295
Capital expenditure ($) 526
Amortisation and depletion ($) 454
* Net of smelter deductions
The Company's results of operations for the eight most recently completed
quarters are summarised in the following table:
(in thousands of 2006 2005 2005 2005 2005 2004 2004 2004
US dollars, Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2
except per share
amounts) $ $ $ $ $ $ $ $
Statement of loss and deficit
Sales 9.083 1,464 - 57 - - - -
Cost of sales 4,788 1,367 - - - - - -
Gross profit 4,295 97 - 57 - - - -
Interest income 300 339 272 326 326 279 143 60
Expenses 3,558 5,079 3,536 2,287 3,831 9,225 2,854 2,848
Profit/(loss) 1,037 (4,643) (3,264) (1,904) (3,505) (8,946) (2,164) (3,554)
before income
tax
Profit/(loss) 161 (4,251) (3,729) (846) (2,793) (8,669) (2,190) (3,580)
after income tax
Non-controlling (475) 58 (1,003) (123) (141) (535) - -
interest
Loss for the 314 4,309 2,726 723 2,652 8,134 2,190 3,580
period
Loss per share 0.00 0.04 0.02 0.01 0.02 0.17 0.05 0.09
Balance sheet
Working capital 34,515 33,765 39,171 49,544 57,285 63,480 29,045 31,117
Total assets 274,381 266,618 295,914 298,948 300,689 305,541 86,879 83,517
Non current 64,684 62,807 70,053 71,056 71,179 72,103 - -
liabilities
Statement of
cash flows
Deferred 848 1,081 1,067 893 860 2,462 1,172 943
exploration and
development
costs - Romania
Plant and 568 1,298 2,506 2,453 1,582 - - -
equipment -
Greece
Deferred 478 1,510 439 891 - - - -
development
costs - Greece
The breakdown of deferred exploration and development costs per mineral property
for the three-month periods ended 31 March 2006 and 2005 is as follows:
Three-month periods ended 31
March
----------- -----------
(in thousands of US 2006 2005
dollars) $ $
--------------- ----------- -----------
Romanian mineral
properties
Certej 772 (91%) 685 (80%)
Cainel 17 (2%) 102 (12%)
Voia 42 (5%) 17 (2%)
Baita-Craciunesti 17 (2%) 40 (5%)
Bolcana - (-%) 16 (1%)
--------------- ----------- -----------
848 (100%) 860 (100%)
--------------- ----------- -----------
Greek mineral
properties
Stratoni - (-%) - (-%)
Skouries 162 (34%) - (-%)
Olympias 316 (66%) - (-%)
--------------- ----------- -----------
478 (100%) - (-%)
--------------- ----------- -----------
Total 1,326 (100%) 860 (100%)
--------------- ----------- -----------
The Certej exploitation licence and the Baita-Craciunesti exploration licence
are held by the Company's 80%-owned subsidiary, Deva Gold S.A. ("Deva Gold").
Minvest S.A. (a Romanian state owned mining company), together with three
private Romanian companies, hold the remaining 20% interest in Deva Gold and the
Company holds the pre-emptive right to acquire such 20% interest. The Company is
required to fund 100% of all costs related to the exploration and development of
these properties. As a result, the Company is entitled to the refund of such
costs (plus interest) out of future cash flows generated by Deva Gold, prior to
any dividends being distributed to shareholders. The Voia and Cainel exploration
licences are held by the Company's wholly-owned subsidiary, European Goldfields
Deva SRL.
The Company recorded a first profit (before tax) of $1.04 million for the
three-month period ended 31 March 2006, compared to a loss (before tax) of $3.51
million for the same period of 2005. The Company incurred a net loss (after tax
and non-controlling interest) of $0.31 million ($0.00 per share) for the
three-month period ended 31 March 2006, compared to a net loss of $2.65 million
($0.02 per share) for the same period of 2005. The following factors have
contributed to this reduction in net loss and first profit (before tax) in Q1
2006:
* Hellas Gold commenced production at its Stratoni mine in September 2005.
As a result, the Company recorded $4.30 million in gross profit on revenues
of $9.08 million in Q1 2006 for the sale of concentrates by Hellas Gold,
compared to $Nil for the same period of 2005. Cost of sales of
$4.79 million included non-recurring costs relating to the start-up of
operations at Stratoni, fixed costs disproportionate to production output in
a ramp-up phase, and $0.45 million in amortisation and depletion expenses.
* The Company's corporate administrative and overhead expenses have
decreased significantly from $0.89 million in Q1 2005, to $0.53 million for
the same period of 2006, primarily as a result of the Company recharging a
larger portion of its overhead costs to its operating subsidiaries, a
portion of which is capitalised by such subsidiaries.
* The Company recorded a non-cash equity-based compensation expense of
$0.67 million in Q1 2006, compared to $0.13 million for the same period of
2005. This increase is due to the larger cost recognised in Q1 2006 related
to outstanding restricted share units and share options during the quarter,
compared to the same period of 2005. In Q1 2005, there were no restricted
share units and fewer share options outstanding which had not been fully
expensed. In Q1 2006, the Company continued a practice of recharging some of
its equity-based compensation expense to its operating subsidiaries, a
portion of which is capitalised by such subsidiaries.
* Effective 1 October 2004, the Company changed its functional currency
from the Canadian dollar to the United States dollar. Despite this, during
Q1 2005, the Company retained significant cash balances in Euro in order to
meet a Euro subscription obligation in Hellas Gold. Hellas Gold also
retained significant cash balances in Euro in order to meet operating, admin
istrative and overhead expenses. Consequently, the Company recorded a
foreign exchange loss of $1.00 million in Q1 2005. The loss resulted
primarily from a strengthening of the United States dollar against the Euro
as at 31 March 2005 compared to 31 December 2004. In contrast, the Company
realised a foreign exchange gain of $0.02 million Q1 2006.
* In Q1 2006, Hellas Gold's administrative and overhead expenses amounted
to $0.74 million, compared to $0.61 million for the same period of 2005.
Hellas Gold's administrative and overhead expenses are mostly attributable
to operations related to the Stratoni mine and plant, and have increased
moderately in Q1 2006 compared to the same period of 2005 reflecting an
increase in activity following the commencement of operations in September
2005.
* In Q1 2006, Hellas Gold incurred an expense of $0.49 million, compared
to $0.96 million for the same period of 2005, for ongoing water pumping and
treatment at its non-operating mines of Olympias and Stratoni (Madem
Lakkos), in compliance with Hellas Gold's commitment to the environment
under its contract with the Greek State.
* In Q1 2006, Hellas Gold incurred a non-recurring expense of $0.90
million, compared to $Nil million for the same period of 2005, for the
maintenance of old adits and equipment at Stratoni.
* The Company recorded a charge for income taxes of $0.88 million in Q1
2006, compared to a credit of $0.71 million for the same period of 2005. The
charge in Q1 2006 has arisen due to the Company recording a profit (before
tax) which led to a reduction in the future tax asset based on losses
carried forward in Hellas Gold. The credit in Q1 2005 has arisen due to the
Company recognising a future tax asset for the losses carried forward in
Hellas Gold.
* The Company recorded a charge of $0.48 million in Q1 2006 relating to
the non-controlling shareholder's interest in Hellas Gold's profit (after
tax) for this period, compared to a credit of $0.14 million for the same
period of 2005, relating to the non-controlling shareholder's interest in
Hellas Gold's loss (after tax) for this period.
Liquidity and capital resources
As at 31 March 2006, the Company had cash and cash equivalents of $30.34
million, compared to
$30.54 million as at 31 December 2005, and working capital of $34.52 million,
compared to $33.77 million as at 31 December 2005.
The small decrease in cash and cash equivalents as at 31 March 2006, compared to
the balances as at
31 December 2005, resulted primarily from a net increase in accounts receivable
vs. accounts payable
($1.90 million), deferred exploration and development costs in Romania ($0.85
million), capital expenditure in Greece ($0.57 million), deferred development
costs in Greece ($0.48 million) and purchase of equipment ($0.04 million),
offset by operating profits ($2.11 million), a decrease in inventory ($1.00
million), interest earned ($0.30 million), the effects of foreign currency
translation on cash ($0.17 million), and the proceeds received from the exercise
of share options ($0.06 million).
The following table sets forth the Company's contractual obligations including
payments due for each of the next five years and thereafter:
+----------------------------------------------------------------------------------+
| Payments due by period |
|(in thousands of US dollars) |
+----------------------+----------+------------+-----------+-----------+-----------+
|Contractual | Total | Less than 1|1 - 3 years|4 - 5 years| After 5|
|obligations | | year| | | years|
+----------------------+----------+------------+-----------+-----------+-----------+
|Operating lease | 887 | 187 | 373 | 327 | - |
|(London office) | | | | | |
+----------------------+----------+------------+-----------+-----------+-----------+
|Exploration licence | 1,415 | - | 1,415 | - | - |
|spending commitments | | | | | |
|(Voia, Romania) | | | | | |
+----------------------+----------+------------+-----------+-----------+-----------+
|Total contractual | 2,302 | 187 | 1,788 | 327 | - |
|obligations | | | | | |
+----------------------+----------+------------+-----------+-----------+-----------+
In 2006, the Company expects to spend a total of (i) $12.80 million in capital
expenditures to fund the development of its projects of Stratoni ($11.05
million), Olympias ($1.75 million), Skouries ($Nil) and Certej ($Nil), (ii)
$6.63 million in exploration and development costs for Greece ($4.05 million)
and Romania
($2.58 million), and (iii) $3.39 million on corporate administrative and
overhead expenses. The Company expects to fund such costs from existing cash
balances and operating cash flow generated at Stratoni.
Outstanding share data
The following represents all equity shares outstanding and the number of common
shares into which all securities are convertible, exercisable or exchangeable:
Common shares: 113,847,876
Common share options: 3,145,999
Restricted share units: 1,650,000
Common shares (fully-diluted): 118,643,875
Preferred shares: Nil
Outlook
Greece - In September 2005, Hellas Gold resumed production at Stratoni following
the award by the Greek State of all necessary environmental and mining permits.
Production of ore is expected to reach
170,000 tonnes by the end of 2006, steadily increasing to 400,000 tonnes per
annum by year five.
In January 2006, Hellas Gold submitted business plans to the Greek government
for its major gold and base metals projects of Skouries and Olympias. This
submission represents a significant milestone in obtaining the necessary
environmental and mining permits to develop the projects.
In April 2006, the Company announced that Hellas Gold had received an official
response from the Greek Ministry of Development (the "Ministry") on the business
plans. The response states that the Ministry is in agreement with the principles
stated in the business plans, and that the Ministry considers the business plans
to be in the best interest of the Greek economy.
With this response, the Ministry endorses Hellas Gold's holistic and phased
approach to the development of the projects, with emphasis on achieving full
production at the Skouries gold-copper porphyry deposit as soon as possible, and
the phasing of the Olympias gold-lead-zinc-silver deposit. This approach
minimises financial risk by the phased injection of capital. The principal
revenue stream in the early phases will be through the sale of concentrates.
Hellas Gold is now focused on completing a full environmental impact study,
which is expected to be submitted to the Greek government in Q3 2006. On
approval of the study, the environmental permits for Skouries and Olympias are
expected to be issued.
Hellas Gold will then submit to the Greek government a final technical report on
the Skouries and Olympias projects, which will restate the principles of the
business plans and take into account any conditions in the environmental permit.
The mining permits are expected to be issued on approval of the technical report
by the Greek government.
The Company also continues to look for new discoveries through focused
exploration programmes.
Romania - In April 2006, the Company announced the conversion of resources into
Canadian National Instrument 43-101 compliant reserves for its 80%-owned Certej
project, underpinning the value of the project. Studies confirm that a gold/
silver flotation concentrate can be produced with high grades and recoveries.
In addition, the Company is pursuing a metallurgical testwork programme
investigating the feasibility of producing gold dore on site by a cost effective
process design.
Environmental Impact Assessments (EIA Levels I and II) were completed in
December 2005. The next stage will be to complete an Environmental Impact Study
(EIS) in order to progress to full feasibility study by the end of 2006, permit
application and project development.
Finally, the Company continues to conduct focused exploration programmes to
expand the resource base in Romania.
Risks and uncertainties
The risks and uncertainties affecting the Company, its subsidiaries and their
business are discussed in the Company's Annual Information Form for the year
ended 31 December 2005, filed on SEDAR at www.sedar.com.
Block admission application
A block admission application has been made for up to 16,346,230 common shares
without par value in the Company to be admitted to trading on the AIM Market of
London Stock Exchange plc. The block admission application is in respect of
shares that may be issued pursuant to the exercise of options under the
Company's Share Option Plan and the vesting of restricted share units under the
Company's Restricted Share Unit Plan. The block admission is expected to become
effective on 16 May 2006.
Documents sent to shareholders
Copies of the Company's Annual Report, Management's Discussion and Analysis and
Consolidated Financial Statements for the year ended 31 December 2005, and
copies of the Notice of Meeting and Management Proxy Circular for the Annual
Meeting of shareholders of the Company to be held on 15 May 2006 have been sent
to shareholders and filed on SEDAR at www.sedar.com.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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