RNS Number:5401H
European Goldfields Ltd
11 August 2006
For Immediate Release 11 August 2006
European Goldfields Limited
RESULTS FOR Q2 2006
STRATONI PRODUCTION CONTINUES TO RAMP-UP
SIGNIFICANT PROGRESS ON OTHER THREE DEVELOPMENT-STAGE PROJECTS
European Goldfields Limited (AIM: EGU / TSX: EGU) ("European Goldfields" or the
"Company") today reports its results for the second quarter to 30 June 2006.
Highlights during 2006 are:
Financial:
* Sales of US$17.4 million and gross profit of US$8.6 million in H1 2006
* Profit of US$1.3 million (before tax) for H1 2006, compared with a loss
of US$5.4 million in H1 2005
* Operating cash flow of US$4.5 million for H1 2006, increasing by US$8.4
million vs. H1 2005
* Working capital of US$36.5 million at 30 June 2006; funded to permitting
of new projects and beyond
* Working capital up by US$2.7 million in H1 2006, despite expenditure on
three development projects
Greece:
* Stratoni production continues to ramp-up; 51% increase in ore mined in
Q2 over Q1 2006; over halfway to achieving full year production target
* Greek government forms a technical committee with Hellas Gold to
facilitate the permitting process for the Skouries and Olympias projects
* Skouries reserves increased by 13%
* Final feasibility studies on track for Skouries and Olympias
* Further off-take agreement signed for the sale of Olympias stockpile of
gold concentrates
Romania:
* Two viable development options identified for the Certej project
* Reserves announced, confirming Certej can produce a robust return at
$425/oz gold and $7/oz silver
* Substantial increase in gold recoveries received for on-site production
of gold dore option
* Clear path identified for Certej permitting and development
Commenting on the results, David Reading, Chief Executive Officer of European
Goldfields, said: "We are proud to report a profit for the first half of 2006 as
production continues to ramp-up at Stratoni. We have started to sell Olympias
surface concentrates and this will also contribute to our increasing cash flow
from operations.
We are encouraged that the Greek government has taken the initiative to set up a
technical committee to facilitate the permitting process for our Skouries and
Olympias projects. We look forward to working in close collaboration with the
Greek government on the building of these major projects. Final feasibility
studies are on track for completion by year-end, with the help of an integrated
team of Greek and international consultants.
In Romania, we received positive results using the Albion Process to produce
gold dore on site. We now have the flexibility of two viable development options
for the Certej project. Having identified a clear path to developing the Certej
project, we now look forward to accelerating permitting procedures in the coming
months."
GREECE
Stratoni production continues to ramp-up - During Q2 2006, 47,966 wet tonnes of
ore were mined from underground, 35,810 dry tonnes of ore were milled at the
Stratoni plant and 7,850 tonnes of zinc and lead/silver concentrates were
shipped and sold for total revenues of US$8.27 million, for which European
Goldfields' 65%-owned subsidiary Hellas Gold S.A. ("Hellas Gold") reported a
gross profit of US$4.33 million.
During H1 2006, 79,718 wet tonnes of ore were mined from underground, 76,143 dry
tonnes of ore were milled at the Stratoni plant and 17,756 tonnes of zinc and
lead/silver concentrates were shipped and sold for total revenues of US$17.36
million, for which Hellas Gold reported a gross profit of US$8.63 million.
Hellas Gold ended H1 2006 with a stockpile inventory of 12,326 wet tonnes of ore
mined.
With this production level in H1 2006, Hellas Gold has achieved over half of its
full year production target for 2006, despite the mine still being in a ramp-up
phase.
Hellas Gold is completely un-hedged and fully exposed to metal prices under its
off-take agreements.
In Q2 2006, three shipments of concentrates were sold compared with four
shipments in Q1 2006, due to the timing of shipments early in Q3. As a result,
Hellas Gold reported a reduction in revenues in Q2 2006 compared to Q1 2006.
However, Hellas Gold ended the second quarter with a large stockpile of
concentrates ready to be shipped. Hellas Gold has since sold 2 shipments of
concentrates in Q3 2006, with a third shipment scheduled next week. Hellas Gold
expects to complete substantially more shipments of concentrates in
H2 than in H1 2006, reflecting the ramping-up of production during the year.
Despite a reduction in shipments and revenues in the quarter, operating profits
increased marginally in
Q2 2006, reflecting an improved operating margin at 52%.
Ore production rates have steadily increased since the beginning of the year,
from 400 tonnes per day (tpd) in January to 850 tpd in June, resulting in a 51%
increase in ore mined in Q2 2006 over Q1 2006. Ore production is on track to
achieve the anticipated 170,000 tonnes by the end of 2006, and is expected to
increase steadily thereafter up to a maximum of 400,000 tonnes per annum by year
five. Ongoing rehabilitation work at the Stratoni plant in Q2 2006 included the
installation of a new flotation cell to improve zinc recovery. Optimum
recoveries of above 90% are now being achieved by the Stratoni plant.
In Q2 2006, the rehabilitating and preparing of mining faces continued, bringing
in levels close to the bottom of the mine to be ready for mining from the new
decline access. Work has also progressed well on the extension of the main ramp
above 252m level to access the higher grade ore in the upper part of the mine.
Improved backfilling capabilities at Mavres Petres, including a new "booster
pump", have ensured that voids from historic and current operations have been
tight filled even in the upper part of the mine.
Cleaning and rehabilitation work at the mined-out Madem Lakkos mine has
continued, and Hellas Gold commenced backfilling of the old workings to reduce
future water pumping and treatment costs and provide other environmental
benefits.
A filter press for producing filter cake from the fine portion of the mill
process tailings and water treatment residue has been ordered and is expected to
be commissioned 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.
Hellas Gold plans to construct a second water treatment plant at the Stratoni
mine, with similar capacity and design to the plant already at the Stratoni
mill. This will improve efficiency and provide capacity for extreme rainfall
events. The new plant will include a second filter press to allow dry storage of
filter cake.
Significant progress has also been made on the new decline to the Mavres Petres
orebody, which is now
480 metres in and advancing at close to 5m per day now that it is through the
bad ground associated with the footwall fault zone and the weathered ground at
the portal.
The new 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.
Significant exploration upside at Stratoni - Stratoni is a robust business with
minimal capital investment due to the extensive existing infrastructure. It also
has well-defined reserves over a six-year life and exciting exploration upside
as the orebody is open in all directions. The new decline is crossing the zone
between old, mined-out areas and the current reserve of the Mavres Petres
orebody, providing excellent access for exploration of potential upside.
The new decline at Stratoni 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 from the new decline,
commencing in Q3 2006. The drilling will be conducted from mucking bays
excavated during the decline's progress. As soon as a third mucking bay has been
finished in September, exploration drilling can start.
The first target will be the east extension of mineralisation in the mined out
Madem Lakkos mine area which is easily accessible from the first available
drilling bay in the new decline. Historic data from this area indicates grades
in the range of 9 to 10.7% lead, 9 to 9.6% zinc and 160 to 185.3 g/t silver.
Drilling will then investigate the east and west extensions of the Mavres Petres
orebody.
Greek government forms technical committee to facilitate permitting process - In
January 2006, Hellas Gold submitted a business plan to the Greek State for the
joint development of its major gold and base metal projects of Skouries and
Olympias. This submission represents a significant milestone in obtaining the
permits for these projects.
The business plan focuses 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 plan. The response states that the Ministry is
in agreement with the principles stated in the business plan, and that the
Ministry considers the business plan 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.
A joint technical committee, with representatives from the Ministry, Hellas Gold
and European Goldfields, has been created to facilitate Hellas Gold's ongoing
work on a full environmental impact study, which is expected to be submitted to
the Greek government in Q4 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 plan 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.
Skouries reserves increased by 13% - In July 2006, European Goldfields announced
a 13% increase in reserve tonnes for its Skouries deposit, which were reported
as follows:
Reserve category '000t Gold Gold Copper Copper
(g/t) (Moz) (%) ('000t)
Proven 77,535 0.87 2.18 0.54 415
Probable 68,667 0.78 1.73 0.55 374
Total 146,202 0.83 3.91 0.54 789
The increase in reserves resulted from a new mine plan and schedule which
includes the adoption of a deeper open pit, an optimised sub-level cave
underground mine design and improved long-term metal price forecasts. The
updated reserve was estimated by SRK Consulting (UK) Ltd at a gold price of $425
/oz and a copper price of $1.1/lb.
The updated reserve is based on a new pit optimisation and subsequent practical
pit design along with a detailed underground mine design based on relevant net
smelter return (NSR) cut-offs and practical mining constraints which takes into
account mining recoveries and dilution.
Final feasibility studies on track for Skouries - In July 2006, European
Goldfields announced that Hellas Gold had retained the services of Aker Kvaerner
Engineering Services, Golder Associates and a number of Greek consultants to
assist in the development of the Skouries project.
Hellas Gold is actively pursuing various studies for input in a final bankable
feasibility study for Skouries. These studies, which are expected to be
completed by the end of 2006, include:
* A cost and definition study for the Skouries process plant and
associated infrastructure, undertaken by Aker Kvaerner Engineering Services
* The design of the Skouries tailings disposal system and tailings
management facility, undertaken by Golder Associates
* An Environmental Impact Study, carried out by the Greek consulting group
Enveco
* A study of hydrogeology and creek boundaries by IGME, the Greek
Institute of Geology & Mineral Exploration, to be used in the development of
a new hydrogeological model
Further off-take agreement signed for sale of Olympias concentrates - Olympias
benefits from an existing stockpile of gold concentrates representing a reserve
of about 258,000 tonnes grading 23.3 g/t gold (containing 193,000 oz of gold),
in addition to substantial underground reserves of gold, lead, zinc and silver.
In May 2006, Hellas Gold entered into an off-take agreement with Shandong MIC
BioGold Ltd (a subsidiary of Michelago Limited of Australia) for the initial
sale of at least 18,000 wet metric tonnes of Olympias concentrates. 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. The monthly
shipments of the initial 18,000 wmt of concentrates commenced in July 2006 and
are expected to end in April 2007. 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 above US$500/oz.
In July 2006, Hellas Gold also entered into an off-take agreement with MRI
Trading AG of Switzerland for the sale of 3,000 wet metric tonnes of
concentrates. Shipments are scheduled between July and September 2006.
European Goldfields and Hellas Gold are currently in advanced stages of
negotiations for the sale of the remaining tonnage of concentrates in the
Olympias stockpile.
GIS compilation near completion - European Goldfields has undertaken to capture
digitally into a geographical information system (GIS) all historical data on
the licences in northern Greece. This comprises 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 has
acquired and processed new satellite imagery over the Greek licences.
A total of seven new targets have been identified from the imagery analysis
within the Hellas Gold permits and a further nine have been identified adjacent
to the company's licences. The targets are based on a combination of structure,
clay / iron anomalies and circular features. The targets are currently being
assessed in terms of the newly digitised historic data for initial ground
investigation in H2 2007. This is expected to generate new drill targets of
similar mineralisation styles to Stratoni, Olympias and Skouries.
ROMANIA
In Romania, European Goldfields has made significant progress on its Certej
project by confirming the viability of two development options and identifying a
clear path to developing and permitting the project.
Clear path for permits at Certej - European Goldfields has established a clear
path to applying for permits to develop its 80%-owned Certej project in Romania.
European Goldfields has recently completed all necessary Environmental Impact
Assessments (Levels I and II) for the Certej project, and is now actively
conducting various additional studies in support of its permit application,
including:
* An Environmental Impact Study (EIS), to be completed in December 2006,
which includes:
- A Social Impact Assessment Study, to be completed by November 2006
- An Archaeological Study, to be completed by the Ministry of Culture by
November 2006
* A Romanian Feasibility Study (RFS), to be submitted to the government
together with the EIS in December 2006
Geotechnical drilling is currently in progress to confirm the suitability of the
selected site for the process plant, to determine top soil depth for the
proposed waste dumps location, to investigate the underlying rock properties for
the sites of the tailings management facilities and for hydrological
investigations. This work is expected to be completed by the end of September
2006.
European Goldfields already holds a mining permit for Certej, which is currently
being exploited in a small scale by Minvest S.A., the Company's partner in
Romania. Minvest, the state-owned mining company, owns the remaining 20%
interest in Certej.
In December 2006, European Goldfields plans to submit the RFS and EIS as part of
its application for environmental and mining permits, allowing an increase in
production at Certej and the processing of ore on site. The permits and a
detailed urbanisation plan would then be expected by end-August 2007 following a
standard public consultation process with the local community. Customary
construction and public utility permits would follow later in 2007 when the
detailed engineering design has been completed for the site plant.
In the meantime, European Goldfields expects to receive by November 2006 a
general urbanisation certificate confirming the designation of Certej as an
industrial mining area.
ECOIND and Cepromin, Romanian companies with proven track records in
environmental research and permitting procedures, and the Technical University
of Civil Engineering Bucharest have been employed to assist in preparing these
studies. The studies also include significant input from international
consultants such as RSG Global, Golder Associate and Core Resources.
Flexibility of two viable development options - European Goldfields is actively
pursuing two viable development options for the Certej project:
* The production and sale of high-grade gold/silver flotation concentrates
* The production of gold dore on site using the Albion Process
The project can also be developed in phases, starting with the sale of
concentrates in the early years followed by the production of gold dore on site.
Using the Albion Process to produce gold dore on site is expected to
significantly increase project profitability and returns.
Sale of high-grade concentrates - In April 2006, European Goldfields announced
the conversion of resources into Canadian NI 43-101 compliant reserves for the
Certej deposit, based on the sale of concentrates option. The reserve estimation
was carried out by independent consultants RSG Global Pty Ltd ("RSG Global") and
can be summarised as follows:
Reserve category Million tonnes Gold Gold Siver Silver
(g/t) (Moz) (g/t) (Moz)
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. This estimation followed 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 and
geotechnical pit design parameters completed by Golder Associates of the UK.
The project is expected to involve the mining and processing of 3.0 Mt of ore
per annum over at least nine years. This would yield approximately 249,000
tonnes of concentrate per annum with high 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.
Production of gold dore on site - The Albion Process is an alternative
development route to the sale of concentrates at Certej. The Albion Process is a
combination of ultra-fine grinding of concentrates and oxidatative leaching at
atmospheric pressure.
European Goldfields announced in July 2006 that it had received additional
results of batch metallurgical testwork indicating a substantial increase in
gold recoveries from samples of flotation concentrates produced from Certej ore.
The new results using the Albion Process at optimised oxidation conditions
suggest recoveries from concentrates of approximately 96% for gold, compared to
previously reported recoveries of 84%. Silver recoveries remain stable,
averaging 92%.
Hydrometallurgy Research Laboratories (HRL, a subsidiary of Xstrata PLC) is
completing the Stage III pilot plant scale continuous testwork programme using
the Albion Process, after which European Goldfields expects to publish Canadian
NI 43-101 compliant reserves based on this process by the end of 2006.
HRL has already successfully completed Stages I and II of the metallurgical
testwork programme.
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. A field visit has been carried out along with a review of all
exploration data. The study has highlighted an overall control of Certej by low
angle faulting. The faults have been important in the development of gold
mineralisation and have also clearly acted as the main pathways for mineralising
fluids. The study has highlighted the possibility of additional mineralisation
within linkage structures between the controlling faults. In addition, the model
is now being applied to other areas within European Goldfields' permits and
adjacent areas in order to identify targets of possible similar style of
mineralisation.
For further information please contact:
European Goldfields: website: www.egoldfields.com
David Reading, Chief Executive Officer e-mail: info@egoldfields.com
Office: +44 (0)20 7408 9534
Buchanan Communications: e-mail: benw@buchanan.uk.com
Ben Willey
Bobby Morse
Office: +44 (0)20 7466 5000
Mobile: +44 (0)7718 771 513
Renmark Financial Communication: website: www.renmarkfinancial.com
Neil Murray-Lyon e-mail: nmurraylyon@renmarkfinancial.com
Henri Perron e-mail: hperron@renmarkfinancial.com
Office: +1 514 939 3989
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- AND SIX-MONTH PERIODS ENDED 30 JUNE 2006
The following discussion and analysis, prepared as at 11 August 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 30 June 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 7.8 Moz gold, 65.8
Moz silver, 0.8 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- and six-month periods ended
30 June 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.
In September 2005, Hellas Gold commenced production at its Stratoni mine in
Greece. The following table summarises operational results at Stratoni for the
two most recently completed quarters.
Stratoni Mine (Greece)
---------------------------------------------------
------------- ------------- ---------
Q1 2006 Q2 2006 Total
---------------------- -------------- ----------- ----------
Inventory (start of period)
Ore mined (wet tonnes) 10,963 1,155 -
Zinc concentrate (tonnes) 95 1,034 -
Lead/silver concentrate (tonnes) 1,268 308 -
Production
Ore mined (wet tonnes) 31,752 47,966 79,718
Ore milled (tonnes) 40,333 35,810 76,143
- Average grade: Zinc (%) 8.89 9.45 9.15
Lead (%) 7.28 5.83 6.60
Silver (g/t) 183.45 146.09 165.88
Zinc concentrate (tonnes) 6,222 6,041 12,263
- Containing: Zinc (tonnes) 3,229 3,098 6,327
Lead concentrate (tonnes) 3,662 2,703 6,365
- Containing: Lead (tonnes) 2,667 1,881 4,548
Silver (oz) 207,501 141,817 349,318
Sales
Zinc concentrate (tonnes) 5,283 5,513 10,796
- Containing payable: Zinc (tonnes)* 2,335 3,180 5,515
Lead concentrate (tonnes) 4,623 2,337 6,960
- Containing payable: Lead (tonnes)* 3,166 1,799 4,965
Silver (oz)* 252,544 140,788 393,332
Operating costs per tonne milled ($) 96 130 112
Operating costs per unit of payable:
- Zinc ($) 744 684 709
- Lead ($) 496 317 431
- Silver ($) 4.04 3.45 3.83
Inventory (end of period)
Ore mined (wet tonnes) 1,155 12,326 -
Zinc concentrate (tonnes) 1,034 1,562 -
Lead/silver concentrate (tonnes) 308 674 -
Financial information (in thousands
of US dollars)
Sales ($) 9,083 8,274 17,357
Gross profit ($) 4,295 4,330 8,625
Capital expenditure ($) 526 1,351 1,877
Amortisation and depletion ($) 456 942 1,398
---------------------- -------------- ----------- ----------
* 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 US dollars, 2006 2006 2005 2005 2005 2005 2004 2004
except per share Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3
amounts)
$ $ $ $ $ $ $ $
------------------ ------ ------ ------ ------ ------ ------ ------ ------
Statement of loss
and deficit
Sales 8,274 9,083 1,464 - 57 - - -
Cost of sales 3,944 4,788 1,367 - - - - -
Gross profit 4,330 4,295 97 - 57 - - -
Interest income 767 300 339 272 326 326 279 143
Expenses 4,345 3,558 5,079 3,536 2,287 3,831 9,225 2,854
Profit/(loss)
before income tax 252 1,037 (4,643) (3,264) (1,904) (3,505) (8,946) (2,164)
Profit/(loss)
after income tax (311) 161 (4,251) (3,729) (846) (2,793) (8,669) (2,190)
Non-controlling
interest (225) (475) 58 (1,003) (123) (141) (535) -
Loss for the period (536) 314 4,309 2,726 723 2,652 8,134 2,190
Loss per share 0.00 0.00 0.04 0.02 0.01 0.02 0.17 0.05
Balance sheet
Working capital 36,453 34,515 33,765 39,171 49,544 57,285 63,480 29,045
Total assets 292,236 274,381 266,618 295,914 298,948 300,689 305,541 86,879
Non current
liabilities 69,018 64,684 62,807 70,053 71,056 71,179 72,103 -
Statement of cash
flows
Deferred
exploration and
development costs -
Romania 992 848 1,081 1,067 893 860 2,462 1,172
Plant and
equipment - Greece 1,599 568 1,298 2,506 2,453 1,582 - -
Deferred
development
costs - Greece 999 476 1,510 439 891 - - -
----------------- ------ ------ ------ ------ ------ ------ ------ ------
The breakdown of deferred exploration and development costs per mineral property
for the three- and six-month periods ended 30 June 2006 and 2005 is as follows:
Six-month periods ended 30 June Three-month periods ended 30 June
-------------------- --------------------
(in thousands of
US dollars) 2006 2005 2006 2005
$ (%) $ (%) $ (%) $ (%)
---------------- ----------- ----------- ----------- -----------
Romanian mineral
properties
Certej 1,635 (89%) 1,280 (73%) 863 (87%) 595 (67%)
Cainel 20 (1%) 343 (20%) 3 (1%) 241 (27%)
Voia 145 (8%) 27 (1%) 103 (10%) 12 (1%)
Baita-Craciunesti 40 (2%) 74 (4%) 23 (2%) 34 (4%)
Bolcana - (-%) 28 (2%) - (-%) 11 (1%)
---------------- ----------- ----------- ----------- -----------
1,840 (100%) 1,752 (100%) 992 (100%) 893 (100%)
---------------- ----------- ----------- ----------- -----------
Greek mineral
properties
Stratoni - (-%) 256 (29%) - (-%) 256 (29%)
Skouries 684 (46%) 402 (45%) 459 (46%) 402 (45%)
Olympias 791 (54%) 233 (26%) 540 (54%) 233 (26%)
---------------- ----------- ----------- ----------- -----------
1,475 (100%) 891 (100%) 999 (100%) 891 (100%)
---------------- ----------- ----------- ----------- -----------
Total 3,315 (100%) 2,643 (100%) 1,991 (100%) 1,784 (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 profit (before tax) of $1.29 million for the six-month
period ended 30 June 2006, compared to a loss (before tax) of $5.41 million for
the same period of 2005. The Company incurred a net loss (after tax and
non-controlling interest) of $0.85 million ($0.01 per share) for the six-month
period ended 30 June 2006, compared to a net loss of $3.38 million ($0.03 per
share) for the same period of 2005.
The Company recorded a profit (before tax) of $0.25 million for the three-month
period ended 30 June 2006, compared to a loss (before tax) of $1.90 million for
the same period of 2005. The Company incurred a net loss (after tax and
non-controlling interest) of $0.54 million ($0.00 per share) for the three-month
period ended 30 June 2006, compared to a net loss of $0.72 million ($0.01 per
share) for the same period of 2005.
The following factors have contributed to this reduction in net loss and profit
(before tax):
* Hellas Gold commenced production at its Stratoni mine in September 2005.
As a result, the Company recorded a gross profit of $8.63 million in the
first half of 2006 and $4.33 million in Q2 2006, on revenues of $17.36
million in the first half of 2006 and $8.27 million in Q2 2006 for the sale
of concentrates by Hellas Gold, compared to $0.06 for the same periods of
2005. Cost of sales of
$8.73 million in the first half of 2006 and $3.94 million in Q2 2006
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 amortisation and depletion expenses of $1.17 million in the first
half of 2006 and
$0.60 million in Q2 2006.
* The Company's corporate administrative and overhead expenses have
decreased significantly from $1.58 million in the first half of 2005 and
$0.70 million in Q2 2005, to $1.00 million and $0.47 million, respectively,
for the same periods 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
$1.43 million in the first half of 2006 and $0.76 million in Q2 2006,
compared to $0.32 million and $0.20 million, respectively, for the same
periods of 2005. This increase is due to the larger cost recognised in the
first half of 2006 related to outstanding restricted share units and share
options during this period, compared to the same period of 2005. In the
first half of 2005, there were no restricted share units and fewer share
options outstanding which had not been fully expensed. In the first half of
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
the first half of 2005, the Company retained significant cash balances in
Euro in order to meet a Euro subscription obligation in Hellas Gold in Q1
2005. Hellas Gold also retained significant cash balances in Euro in order
to meet operating, administrative and overhead expenses. Consequently, the
Company recorded a foreign exchange loss of $0.93 million in the first half
of 2005 and a small gain of $0.07 million in Q2 2005. The loss resulted
primarily from a strengthening of the United States dollar against the Euro
as at 30 June 2005 compared to 31 December 2004.
In contrast, the Company realised a foreign exchange gain of $0.22 million
in the first half of 2006 and $0.20 million in Q2 2006, due in part to the
weakening of the United States dollar against the Euro as at 30 June 2006
compared to 31 December 2005. During Q2 2006, the Company converted Canadian
dollars received upon the exercise of share options into United States
dollars, which also contributed to the foreign exchange gain in Q2 2006.
* Hellas Gold's administrative and overhead expenses amounted to $1.80
million in the first half of 2006 and $1.06 million in Q2 2006, compared to
$0.75 million and $0.14 million, respectively, for the same periods 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 the first half of 2006 compared to the same period of 2005
reflecting an increase in activity following the commencement of operations
in September 2005.
* Hellas Gold incurred an expense of $1.39 million in the first half of
2006 and $0.89 million in Q2 2006, compared to $2.21 million and $1.25
million, respectively, for the same periods 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.
* Hellas Gold incurred a non-recurring expense of $2.03 million in the
first half of 2006 and $1.12 million in Q2 2006, compared to $Nil million
for the same periods of 2005, for the maintenance of old adits and equipment
at Stratoni.
* The Company recorded a charge for income taxes of $1.44 million in the
first half of 2006 and
$0.56 million in Q2 2006, compared to a credit of $1.77 million and $1.06
million, respectively, for the same periods of 2005. The charge in 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 2005 had arisen due to the Company recognising a future tax
asset for the losses carried forward in Hellas Gold.
* The Company recorded a charge of $0.70 million in the first half of 2006
and $0.23 million in Q2 2006 relating to the non-controlling shareholder's
interest in Hellas Gold's profit (after tax) for these periods, compared to
a credit of $0.26 million and $0.12 million, respectively, for the same
periods 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 30 June 2006, the Company had cash and cash equivalents of $33.09 million,
compared to
$30.54 million as at 31 December 2005, and working capital of $36.45 million,
compared to $33.77 million as at 31 December 2005.
The increase in cash and cash equivalents as at 30 June 2006, compared to the
balances as at 31 December 2005, resulted primarily from operating profits ($
4.54 million), proceeds received from exercise of share options ($2.45 million),
the effects of foreign currency translation on cash ($1.0 million) and a net
decrease in accounts receivable vs accounts payable ($0.73 million), offset by
capital expenditure in Greece
($2.17 million), deferred exploration and development costs in Romania ($1.84
million), deferred development costs in Greece ($1.48 million), an increase in
inventory ($0.64 million) and purchase of equipment
($0.07 million).
The following table sets forth the Company's contractual obligations including
payments due for each of the next five years and thereafter:
(in thousands of US dollars) Payments due by period
Contractual Total Less than 1 1-3 years 4-5 years After 5 years
obligations year
---------------- -------- ---------- --------- --------- ---------
Operating lease
(London office) 840 187 373 280 -
Exploration
licence spending
commitments
(Voia, Romania) 1,345 - 1,345 - -
---------------- -------- ---------- --------- --------- ---------
Total contractual
obligations 2,185 187 1,718 280 -
---------------- -------- ---------- --------- --------- ---------
For the six months ending 31 December 2006, the Company expects to spend a total
of (i) $4.57 million in capital expenditures to fund the development of its
Stratoni projects (including exploration costs),
(ii) $3.00 million in exploration and development costs for Greece ($1.60
million) and Romania ($1.40 million), (iii) $4.00 million in Hellas Gold admin
istrative and overhead expenses and other Hellas Gold non-operating expenses and
(iv) $1.60 million in 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: 3,730,999
Restricted share units: 1,980,000
Common shares (fully-diluted): 119,558,875
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 permits for the
projects.
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.
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.
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 the Company, 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.
The Company also continues to look for new discoveries through focused
exploration programmes.
Romania - The Company has completed all necessary Environmental Impact
Assessments (EIA Levels I and II) for the Certej project. The Company is now
completing an Environmental Impact Study (EIS) and a feasibility study, in support
of an application for mining permits expected to be submitted by end-2006.
The Company is actively pursuing two viable development options for the Certej
project: the production and sale of gold-rich concentrates from Certej, and the
production of gold dore on site using the Albion Process.
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.
Director's shareholding
On 11 August 2006, the Company granted for nil consideration 150,000 restricted
share units ("RSUs") to Timothy Morgan-Wynne, the Company's newly appointed
Director and Chief Financial Officer, under the Company's Restricted Share Unit
Plan. The RSUs are redeemable for 75,000 common shares of the Company on 31 May
2007, and 75,000 common shares of the Company on 31 May 2008.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR SFUFWSSMSEEA
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