Medoro Resources Announces Second Quarter Results
TORONTO, Aug. 13 /CNW/ - Medoro Resources Ltd. (TSX-V/AIM: MRL) announced
today its second quarter and first half results for the three and eight-month
periods ending June 30, 2004. Medoro Resources was formed following the
business combination between Full Riches Investments Limited and a wholly-
owned subsidiary of Gold Mines of Sardinia, plc.
The new entity, Medoro Resources, has elected to report its financial
results on a calendar year basis. Full Riches previously reported its results
for the three months ended January 31, 2004, and, having been identified as
the acquirer for accounting purposes, this release includes results for both
the three and eight-month periods ending June 30, 2004.
For the three and eight-month periods ended June 30, 2004, Medoro
Resources reported a loss of $1.9 million and $3.0 million or $0.02 and $0.05
per share respectively. The loss largely reflects the impact of one-time costs
related to the business combination, as well as ongoing operating costs at its
90%-owned operating subsidiary in Sardegna.
In Sardegna at the Monte Ollasteddu prospect, all remaining issues
related to site access and exploration permits were resolved and exploration
has commenced. Two diamond drill rigs are currently operating, with 3,000
metres of drilling planned to test approximately 2 kilometres of strike length
identified by previous surface sampling. Concurrently, geological mapping and
soil sampling is being conducted on the eastern plateau area in order to
establish drill targets for the second phase of drilling.
On June 7, 2004, the company announced the proposed acquisition of Andina
Minerals Inc. in exchange for 25 million common shares of Medoro, with closing
subsequently extended to August 31, 2004. On the same date, the company
announced a proposed restructuring of its Joint Venture with Sargold Resource
Corporation whereby Sargold would acquire Medoro's entire interest in the
Furtei operations in exchange for (euro) 6 million in cash, the assumption of
(euro) 2 million in liabilities and C$1 million in common shares of Sargold,
with closing expected on or before August 31. Due diligence is continuing by
all parties and further announcements are expected in the near future.
Financial Statements, Notes and Management's Discussion & Analysis
follow.
Medoro Resources Ltd.
Consolidated Balance Sheets
Expressed in Canadian dollars
June 30, October 31,
2004 2003
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Unaudited Audited
Assets
Current assets
Cash and equivalents $ 4,392,545 $ 3,221,339
Accounts receivable 2,087,749 9,468
Promissory note - 50,000
Inventories 646,611 -
Prepaids and deposits 463,021 1,973
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7,589,926 3,282,780
Loan receivable (Note 2 d) - 662,925
Mineral properties (Notes 2 f and 3) 24,207,498 -
Property, plant and equipment 5,588,745 -
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Total assets $ 37,386,169 $ 3,945,705
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Liabilities and shareholders' equity
Current liabilities
Accounts payable and accruals $ 3,629,473 $ 97,762
Long-term debt 9,347,144 -
Other long-term liabilities 4,942,709 -
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17,919,326 97,762
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Shareholders' equity
Share capital (Note 4) 28,981,977 6,706,001
Contributed surplus (Notes 2 c and f) 179,353 -
Shares to be issued (Note 3) - 15,000
Special warrants (Note 2 b) - 2,490,905
Subscriptions received (Note 2 c) - 1,255,000
Cumulative translation adjustment (41,828) -
Deficit (9,652,659) (6,618,963)
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19,466,843 3,847,943
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Total liabilities and shareholders' equity $ 37,386,169 $ 3,945,705
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These unaudited interim consolidated financial statements for the periods
ended June 30, 2004 have not been reviewed by the Company's auditor.
See accompanying notes to unaudited interim consolidated
financial statements.
Medoro Resources Ltd.
Consolidated Statements of Operations and Deficit
Expressed in Canadian dollars, unaudited
Three Months Three Months Eight Months Nine Months
Ended Ended Ended Ended
June 30, July 31, June 30, July 31,
2004 2003 2004 2003
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Interest income $ 13,062 $ (5,995) $ 80,219 $ 224
General and
administrative
expenses (1,182,076) (149,022) (2,297,859) (197,718)
Exploration
expenses (438,202) - (305,870) -
Loss on disposal
of capital assets - - - (1,844)
Amortization (305,870) - (560,341) (97)
Foreign exchange
gains (losses) 33,254 (1,029) 45,428 (8,467)
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Net loss for
the period (1,879,832) (156,046) (3,033,696) (207,902)
Deficit,
beginning of
period (7,772,827) (6,324,136) (6,618,963) (6,272,280)
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Deficit,
end of period $(9,652,659) $(6,480,182) $(9,652,659) $(6,480,182)
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Basic and
diluted loss
per share $ (0.02) $ (0.01) $ (0.05) $ (0.02)
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Weighted average
number of
common shares
outstanding 84,670,649 11,871,849 57,264,086 11,871,851
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See accompanying notes to unaudited interim consolidated
financial statements.
Medoro Resources Ltd.
Consolidated Statements of Cash Flows
Expressed in Canadian dollars, unaudited
Three Months Three Months Eight Months Nine Months
Ended Ended Ended Ended
June 30, July 31, June 30, July 31,
2004 2003 2004 2003
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Cash provided
by (used in):
Operating
activities
Net loss for
the period $(1,879,832) $ (156,046) $(3,033,696) $ (207,902)
Items not
affecting cash:
Loss on disposal
of capital
assets - - - 1,844
Amortization 305,870 - 305,870 97
Foreign exchange
(gains) losses (33,254) 1,029 (45,428) 8,467
Changes in
non-cash working
capital items:
Accounts
receivable (58,729) 123,735 (363,938) 118,227
Promissory note - - 50,000 -
Inventories (6,069) - (4,436) -
Prepaids and
deposits (314,191) 2,082 (306,295) -
Accounts payable
and accrued
liabilities (462,809) (22,257) (6,228) (19,538)
Other long-term
liabilities (458,331) - 183,527 -
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(2,907,345) (51,457) (3,220,624) (98,805)
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Investing
activities
Acquisition of
Sardinia Gold
Mining SpA,
net of acquired
cash (Note 2) (601,785) - (2,104,279) -
Acquisition of
mineral
properties
(Note 3) (9,752) - (1,008,042) -
Increase in
property,
plant and
equipment, net 4,327 - (11,548) -
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(607,210) - (3,123,869) -
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Financing
activities
Issuance of
special warrants - - 295,000 -
Issuance of
subscription
receipts - - 8,015,000 -
Issuance costs - - (781,515) -
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- - 7,528,485 -
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Foreign exchange
impact on cash 14,632 - (12,786) -
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Net increase
(decrease) in
cash and
equivalents (3,499,923) (51,457) 1,171,206 (98,805)
Cash and
equivalents,
beginning of
period 7,892,468 193,131 3,221,339 240,479
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Cash and
equivalents,
end of period $ 4,392,545 $ 141,674 $ 4,392,545 $ 141,674
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See accompanying notes to unaudited interim consolidated
financial statements.
Medoro Resources Ltd.
Notes to Unaudited Interim Consolidated Financial Statements
For the Three and Eight Month Periods Ended June 30, 2004 and the
Three and Nine Month Periods Ended July 31, 2003
All Amounts Expressed in Canadian Dollars
Unaudited
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1. Basis of Presentation
The interim consolidated financial statements include the accounts of
the amalgamated entity resulting from the Business Combination as
described in Note 2 (the "Company"), Full Riches Investments Ltd.
("FRI") and its wholly owned subsidiaries, principally Gold Mines of
Sardinia Pty. Ltd. ("GMS Australia"), Sardinia Gold Mining SpA
("Sardinia Gold") and Miniere di Pestarena srl. Pursuant to the
Business Combination, the amalgamated company, formed on March 2,
2004, has continued under the name of Medoro Resources Ltd.
The unaudited interim period financial statements have been prepared
by the Company in accordance with Canadian generally accepted
accounting principles ("GAAP"). All financial summaries included are
presented on a comparative and consistent basis showing the figures
for the corresponding period in the preceding year. The preparation
of financial data is based on accounting principles and practices
consistent with those used in the preparation of annual financial
statements. Certain information and footnote disclosure normally
included in financial statements prepared in accordance with GAAP has
been condensed or omitted. These unaudited interim period statements
should be read together with the audited financial statements and the
accompanying notes included in the FRI's latest annual report. In the
opinion of the Company, its unaudited interim financial statements
contain all adjustments necessary in order to present a fair
statement of the results of the interim periods presented.
Certain reclassifications have been made to the prior period
financial statements to conform to the current period presentation.
2. Acquisition of Sardinia Gold Mining SpA
(a) The business combination
On October 3, 2003, FRI entered into an arm's length agreement with
Gold Mines of Sardinia plc, a public company formed under the laws of
England and Wales ("GMS England") pursuant to which FRI and GMS
England agreed to complete a business combination (the "Business
Combination"). GMS England is a gold exploration and development
company with interests on the Italian island of Sardinia through its
operating subsidiary Sardinia Gold, a joint venture with the
Sardinian regional Government, in which GMS England holds a 90%
interest through GMS Australia and the Sardinian regional Government
the remaining 10%.
FRI received approval in February 2004 from the TSX Venture Exchange,
including the amalgamation of FRI with GMS England's wholly owned
subsidiary, Medoro Resources Ltd. ("GMS Canada"), incorporated under
the laws of the Yukon, to create the Company to continue under the
name of Medoro Resources Ltd. The amalgamation was completed February
24, 2004. GMS England transferred all of the issued and outstanding
shares in the capital of GMS Australia from GMS England to GMS Canada
in consideration for an aggregate of 38,726,261 shares of GMS Canada.
Pursuant to the terms of the amalgamation:
(i) GMS England, as the sole shareholder of GMS Canada, received
common shares of the Company, representing approximately 50% of
the Company's issued and outstanding shares as of the date of
the completion of the amalgamation. In conjunction with the
completion of the Business Combination, GMS England distributed
the shares it received of the Company to its shareholders; and
(ii) The shareholders of FRI received common shares of the Company
representing, in aggregate, approximately 50% of the Company's
issued and outstanding shares as of the date of the
amalgamation.
In identifying the acquirer in this Business Combination,
consideration was given to the proposed relative composition of the
Board of Directors and Management of the Company. FRI was identified
as the acquirer.
(b) Initial private placement
Completion of the Business Combination was subject to the successful
completion of $10,000,000 (gross) in equity financings by FRI (the
"Private Placements"). The use of proceeds of the financings is for
future exploration and development expenses and general working
capital. In connection with the Business Combination, FRI announced a
non-brokered private placement of up to 40,500,000 special warrants
(the "Special Warrants") at a price of $0.10 per Special Warrant for
gross proceeds of $4,050,000 (the "Initial Private Placement"). On
October 27, 2003, FRI completed the issue and sale of 25,000,000
Special Warrants for aggregate proceeds of $2,500,000. FRI completed
the issue and sale of the balance of the $1,550,000 on December 11,
2003. The Special Warrants were subsequently exercised for common
shares prior to the completion of the amalgamation and each FRI
common share received on such exercise was exchanged of 0.5 common
shares of the Company pursuant to the amalgamation. Issuance costs
related to the transaction amounted to $43,798.
(c) Agency Private Placement
In connection with the satisfaction of the condition to complete the
balance of the Private Placements, FRI retained an agent ("the
Agent") in connection with the private placement of 22,900,000
subscription receipts (the "Subscription Receipts") at a price of
$0.35 per Subscription Receipt for aggregate proceeds of $8,015,000
(the "Agency Private Placement"). Each Subscription Receipt was
exercisable, for no additional consideration, into one FRI common
share. The private placement was completed on January 16, 2004. The
Subscription Receipts were exercised for FRI common shares prior to
the amalgamation and each FRI common share received on the exercise
was subsequently exchanged for 0.5 common shares of the Company
pursuant to the amalgamation.
In connection with the Agency Private Placement, FRI paid the Agent a
commission of $480,900 equal to 6% of the aggregate proceeds from the
Agency Private Placement and issued 1,374,000 Agent's Warrants. Each
Agent's Warrant entitles the holder to acquire one FRI common share
at a price of $0.35 until January 15, 2006. In addition, each Agent's
Warrant was exchanged for 0.5 replacement warrants of the Company at
$0.70 per warrant pursuant to the amalgamation. The fair value of the
Agent's Warrants of $117,950, included in contributed surplus, was
calculated using the Black-Scholes pricing model assuming a risk-free
interest rate of 2.87%, volatility of 40% and no dividend payments.
Total issuance costs related to the Subscription Receipts were
$864,762 including the commission, warrants and advisory and legal
fees.
(d) Interim financing of GMS England and Sardinia Gold
In conjunction with the Business Combination, FRI arranged interim
financing (the "Interim Financing") for GMS England consisting of US
$1,500,000 advanced by FRI in two tranches pursuant to a loan
agreement between FRI and GMS England dated October 3, 2003 (the "GMS
Loan Agreement"). The loans bore interest at a rate of 10% per annum
from the date of issue and matured following the completion of the
Business Combination such that the obligations of GMS England
thereunder expired on closing of the Business Combination. The loans
were direct obligations of GMS England, secured by a charge over the
shares of GMS Australia. All funds advanced under the Interim
Financing were paid directly to Sardinia Gold. In February 2004,
prior to the Business Combination, FRI advanced ("SGM Advances")
additional funds of $211,968 directly to Sardinia Gold for working
capital purposes. Pursuant to the Business Combination, the
obligations of GMS England under the Interim Financing and SGM
Advances were acquired by the Company.
(e) Joint venture
Pursuant to the terms of the Business Combination, the Company
entered into a binding letter of intent with a wholly-owned
subsidiary of Gold Fields Limited ("Gold Fields"). Under the letter
of intent, the Company will grant Gold Fields an exclusive option
over all of its properties in Sardinia not currently under option to
Bolivar Gold Corp. or Sargold Resource Corporation. Gold Fields will
have a period of 12 months to perform preliminary evaluations on the
properties, during which period Gold Fields will have the right to
acquire up to a 70% interest in specific properties, with 50% to be
earned by sole-funding all expenditures through to completion of a
bankable feasibility study. Upon completion of a bankable feasibility
study, Gold Fields and Sardinia Gold will each be responsible for
funding further exploration, development and other work on the
property in accordance with their respective percentage interests.
(f) Other matters
(i) In consideration for their services, in introducing the
parties, assistance with the Italian authorities, due
diligence, assisting with the financing and continued
services in completing the Business Combination, a total of
10,000,000 FRI common shares were issued, after receiving
TSX Venture Exchange approval, to Next com Italia srl, Jose
Francisco Arata and Endeavour Financial. Pursuant to the
amalgamation, each of these common shares were exchanged for
0.5 common shares of the Company.
(ii) FRI retained McFarlane Gordon Inc. to act as sponsor (the
"Sponsor") in connection with the Business Combination in
accordance with the policies of the TSX Venture Exchange.
As consideration for the services rendered by the Sponsor,
FRI agreed to issue 250,000 FRI common shares which,
pursuant to the amalgamation, were subsequently exchanged
for 0.5 common shares of the Company.
(iii) Post-amalgamation, the Company issued:
- 1,182,888 options to holders of GMS England options;
- 5,793,918 warrants to holders of GMS England warrants as
consideration for the assignment to, and assumption by,
the Company of certain GMS England Agreements; and
- 319,857 common shares to Williams de Broe in consideration
of services performed in connection with the amalgamation.
(iv) On February 24, 2004, the Business Combination was completed
and shares in the Company began trading on March 2, 2004.
The acquisition of 100% of GMS Australia has been accounted
for using the purchase method and the results of operations
have been included in the earnings of the Company from the
date of amalgamation.
The preliminary allocation of the purchase price is
summarized below:
44,171,118 shares issued at $0.20 per share
(Notes 2 a, 2 f (i), 2 f (ii) and 2 f (iii)) $ 8,834,223
Fair value of GMS England options and warrants
exchanged for options and warrants of the
Company (Note 2 f (iii)) 61,403
Acquisition costs 1,450,000
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Total consideration $ 10,345,626
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Net assets acquired:
Cash $ 467,080
Accounts receivable 1,751,366
Inventories 655,756
Prepaids and deposits 158,821
Mineral interests 21,017,046
Property, plant and equipment 6,197,089
Accounts payable and accrued liabilities (3,001,865)
Interim Financing and SGM Advance
(Note 2 d) (2,203,968)
Long-term debt (9,544,655)
Other long-term liabilities (5,151,044)
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$ 10,345,626
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The fair value of the options and warrants was determined
using the Black-Scholes option pricing model assuming no
dividends were paid, a volatility of the Company's shares of
40%, an expected life of options and warrants ranging
between 0.5 years and 5 years and annual risk-free interest
rate ranging between 2.15% and 3.48%.
As at June 30, 2004, $405,313 of the acquisition costs was
included in accounts payable and accrued liabilities.
3. Acquisition of Miniere di Pestarena srl
On March 23, 2004, the Company acquired 100% of the share capital in
Miniere di Pestarena srl, an Italian company with exploration rights
covering the Pestarena and Lavanchetto concessions located in the
Piedmont Region in Northern Italy for total consideration amounting
to $3,208,042 represented by a cash payment of $979,835 (600,000
Euros), acquisition costs of $28,207 and the issuance of 4,000,000
common shares of the Company on May 5, 2004. These shares are subject
to a hold period expiring on September 4, 2004, during which they
cannot be traded. The acquisition has been accounted for using the
purchase method and the purchase price has been allocated to mineral
properties.
4. Capital Stock
(a) Common shares
Authorized - Unlimited common shares without par value
Issued and outstanding -
Number
of shares Amount
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Opening balance as at
October 31, 2003 11,871,849 $ 6,706,001
Issued prior to amalgamation:
As consideration for bridge
facility (see below) 150,000 15,000
Upon exercise of Special Warrants
(Note 2 b) 40,500,000 4,006,202
Upon exercise of Subscription
Rights (Note 2 c) 22,900,000 7,150,238
As consideration for services in
connection with the Business
Combination (Note 2 f (i)) 10,000,000 1,000,000
As consideration for services
rendered by the Sponsor
(Note 2 f (ii)) 250,000 25,000
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Balance as at February 24, 2004,
prior to amalgamation 85,671,849 $ 18,902,441
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Number
of shares Amount
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Opening balance as at February 24,
2004, post-amalgamation, after
giving effect to exchange of
0.5 common shares of the Company
for each FRI common share 42,835,925 $ 18,902,441
Issued to GMS England pursuant to
the Business Combination (Note 2 a) 38,726,261 7,745,252
Issued as consideration for services
in connection with the amalgamation
(Note 2 f (iii)) 319,857 63,971
Issued in settlement of accrued
liabilities (see below) 140,624 70,313
Issued to acquire Miniere di
Pestarena srl (Note 3) 4,000,000 2,200,000
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Closing balance as at June 30, 2004 86,022,667 $ 28,981,977
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FRI issued 150,000 common shares to Endeavour Mining Capital
Corp. as part of the consideration for providing it with a bridge
facility of US $500,000 bearing interest at a rate of 10% per
annum that matured on October 31, 2003.
On May 5, 2004, pursuant to the approval of the TSX Venture
Exchange, the Company issued an aggregate of 140,624 common
shares in final payment of $70,313 of accrued liabilities owed to
four consultants to the Company.
(b) Escrow shares
As at June 30, 2004, there were 3,426,000 common shares of the
Company held in escrow.
(c) Stock options
As at June 30, 2004, there are 2,825,000 stock options of the
Company outstanding exercisable at $0.70 per common share,
including 325,000 stock options of the Company granted in
February 2004 to certain officers and consultants of FRI. In
addition, subsequent to the amalgamation, 1,182,888 stock options
of the Company were issued to holders of GMS England options
expiring through mid-2006 at exercise prices ranging from $1.45
to $3.25 per common share.
(d) Stock warrants
As at June 30, 2004, there were 5,793,918 warrants (Note 2 f
(iii)) outstanding with expiry dates ranging up until 2008 and
exercise prices ranging from $0.70 to $3.30 per common share. In
addition, there were 687,000 Agent's Warrants (Note 2 c)
outstanding exercisable at $0.70 per common share expiring on
January 15, 2006.
5. Related Party Transactions
During the eight months period ended June 30, 2004, the Company paid
the following amounts to related parties:
(a) Consulting fees of $23,888 and rent of $4,000 (2003 - Nil) were
paid to a company in which a director of the Company is an
officer.
(b) Consulting fees of $196,289 were paid (2003 - Nil) to Next com
Italia srl, a company in which the President of Sardinia Gold is
managing director.
6. Segmented Information
The Company operates in one principal business segment, gold
exploration and development, principally conducted through its
operating subsidiaries located in Italy.
Management's Discussion and Analysis of Results of Operation and
Financial Condition for the three and eight-month periods ended
June 30, 2004
This Management's Discussion and Analysis should be read in conjunction
with the company's unaudited consolidated financial statements for the periods
ended June 30, 2004 and related notes thereto which have been prepared in
accordance with Canadian generally accepted accounting principles. In
addition, the following should be read in conjunction with the 2003 audited
consolidated financial statements. All figures are expressed in Canadian
dollars unless otherwise noted.
This Management's Discussion and Analysis has been prepared with
reference to National Instrument 51-102 "Continuous Disclosure Obligations" of
the Canadian Securities Administrators. This Management's Discussion and
Analysis has been prepared as of August 13, 2004.
Overview
Medoro Resources Ltd. was created in February 2004 as a result of the
business combination between Full Riches Investments Limited and GMS Canada,
whose principal assets were the exploration and formerly-producing gold assets
belonging to Gold Mines of Sardinia (GMS).
The original focus of GMS was the exploration, development and production
of gold on the island of Sardegna in Italy. GMS was successful in this regard,
having produced, in total, 130,000 ounces of gold during the period 1997 -
2003. This was not a particularly prosperous period for gold producers, large
and small, as the price of gold was hovering around 20-year lows. As a result,
GMS' ability to explore for and develop additional gold resources was
constrained by available cash flow. Having exhausted all readily-available
sources of ore in February 2003, the company suspended operations and pursued
alternatives that would enable GMS shareholders to realize some value for its
extensive portfolio of exploration concessions.
The Full Riches transaction achieved this objective. In addition to
providing badly needed cash resources, a key requirement of the transaction
was that Full Riches secure the participation of a senior partner who would
take on the responsibility of funding an aggressive program of exploration of
GMS' concessions. This commitment was fulfilled by the participation of a
wholly-owned subsidiary of Gold Fields Limited, who have a 12-month exclusive
right to explore any GMS concession not previously optioned to another party
and can earn a 70% interest in any such property by funding all costs through
to the completion of a bankable feasibility study.
In addition to the Gold Fields Joint Venture, GMS had previously
negotiated two exploration joint ventures, one with Sargold Resource
Corporation for exploration in the Furtei area and one with Bolivar Gold Corp.
for the exploration of the Monte Ollasteddu concession. Bolivar Gold Corp. can
earn a 70% interest in the property by funding all expenditures through to the
completion of a bankable feasibility study. A wholly-owned subsidiary of Gold
Fields is currently earning a 60% interest in the property by funding all of
Bolivar Gold's obligations. At Furtei, Sargold Resource Corporation is earning
a 45% interest in the concessions by funding (euro) 15 million over an 8 year
period. As announced on June 7, 2004, the parties have agreed to a
restructuring of this agreement whereby Sargold would acquire Medoro's entire
interest in the Furtei operations in exchange for (euro) 6 million in cash,
the assumption of (euro) 2 million in liabilities and C$1 million in common
shares of Sargold, with closing expected on or before August 31, 2004.
Medoro Resources' vision is to create the pre-eminent European-focused
gold exploration company with a diverse portfolio of gold prospects throughout
the region. To achieve this objective, the company intends to leverage off of
its existing land position in Sardegna. Given the company's current financial
and technical resources, Medoro's strategy will initially be to rely
extensively on joint ventures with highly-qualified, well-financed partners to
fund exploration of both existing concessions as well as newly-acquired
opportunities elsewhere in Italy and throughout Europe.
In order to achieve this strategy, the company must reduce the negative
cash flow associated with the formerly producing GMS assets to a point where
Medoro is organized and operated on a largely 'cash neutral' basis, with all
exploration funding provided by joint venture partners. Failure to achieve
this will limit the company's ability to acquire new properties and may
ultimately require the sale of some assets or additional equity financing, if
available. In the longer term, this strategy is only viable if economic
quantities of gold are discovered and developed on at least one of the
company's properties and thereby generate cash flow operations sufficient to
cover all corporate costs on an ongoing basis. On June 7, 2004, the company
announced the proposed acquisition of Andina Minerals Inc. in exchange for
25 million common shares of Medoro, with closing subsequently extended to
August 31, 2004. Given the regulatory delays experienced in carrying out its
stated strategy in Sardegna, the company believes that it is appropriate to
diversify its geographical focus and that the Andina acquisition would achieve
this objective as well as significantly enhance the management team.
Results of Operations
With the recently completed business combination, comparisons between
current costs and prior periods are not meaningful. However, the following
comments identify various issues related to the results of operations for the
periods ending June 30, 2004 and the company's financial condition as of that
date.
With mining operations in Sardegna suspended as of February 2003, the
only tangible activity in the group was general and administrative costs
related to the business combination as well as ongoing administrative costs,
primarily in Italy and Canada. These costs amounted to $2.3 million in the
eight months ended June 30, 2004, with $1.2 million occurring in the most
recent three months. In addition, a total of $438,000 was expended in the past
three months on exploration that is not recoverable from joint venture
partners. After adjusting for non-cash items and changes in non-cash working
capital, operating activities consumed $2.9 million in the three months ended
June 30, 2004 and a further $0.3 million in the preceding five months.
Investing activities in the three and eight-month periods ended June 30, 2004
consist largely of the acquisition of the Pestarena property in northwestern
Italy at a cash cost of $1.0 million plus the issuance of 4 million shares.
During the eight months ended June 30, 2004 the company raised net proceeds of
$7.5 million through the sale of 22.9 million subscription receipts which were
exercisable, for no additional consideration, into common shares of Full
Riches which, pursuant to the business combination, were exchanged for
0.5 common shares of Medoro Resources.
The following tables provide selected financial information for the three
most recent years and eight most recent quarters. All results from business
activities preceding the GMS acquisition have been treated as discontinued
operations.
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Three most recent years Oct. 31 Oct. 31 Oct. 31
2003 2002 2001
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a) Revenues $ 0 $ 798,695 $ 979,116
b) Income before
discontinued operations 0 0 0
- per share 0.00 0.00 0.00
c) Net income (346,683) (507,972) (42,559)
- per share (0.03) (0.04) (0.00)
d) Total assets 3,945,705 448,219 258,515
e) Long term debt 0 0 0
f) Dividends per share 0.00 0.00 0.00
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Summary of Jun. 30 Mar. 31 Jan. 31 Oct. 31
Quarterly Results 2004 2004(x) 2004 2003
-------------------------------------------------------------------------
a) Revenues $ 0 $ 0 $ 0 $ 0
b) Income before
discontinued
operations (1,879,832) (1,064,016) 0 0
- per share (0.02) (0.02) 0.00 0.00
c) Net income (1,879,832) (1,064,016) (89,848) (138,781)
- per share (0.02) (0.02) (0.01) (0.01)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(x) two-month period
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Summary of Jul. 31 Apr. 30 Jan. 31 Oct. 31
Quarterly Results 2003 2003 2003 2002
-------------------------------------------------------------------------
a) Revenues $ 0 $ 0 $ 0 $ 0
b) Income before
discontinued
operations 0 0 0 0
- per share 0.00 0.00 0.00 0.00
c) Net income (156,046) (26,289) (25,567) (613,543)
- per share (0.01) (0.00) (0.00) (0.05)
-------------------------------------------------------------------------
Liquidity and Financial Resources
At June 30, 2004, Medoro Resources had $4.4 million in cash and working
capital of $4.0 million. In order to achieve its objectives, the company has
initiated a thorough review of all activities in Sardegna with a view to
reducing ongoing costs not recoverable from exploration partners to a minimal
level. At the same time, there are approximately $3.6 million in trade
payables, many of which are greater than 90 days overdue, which need to be
settled in the coming months.
In addition to reducing ongoing costs, management is actively looking at
a number of possible corporate arrangements which could help ensure that
shareholders ultimately realize the inherent value in the company's exciting
exploration portfolio. In the absence of success in these initiatives, some
combination of asset sales or additional financing would be required to ensure
the company's long-term survival.
Disclosure of Outstanding Share Data
Medoro Resources' outstanding voting or equity securities, or securities
convertible into, or exercisable or exchangeable for, voting or equity
securities of the company, are as follows:
-------------------------------------------------------------------------
Securities Jun 30, 2004 Mar 31, 2004 Oct 31, 2003
-------------------------------------------------------------------------
Common shares 86,022,667 81,882,043 11,871,849
Warrants, with expiry dates
ranging up until 2008 and
exercise prices ranging
from $0.70 to $3.30 5,793,918 5,793,918 Nil
Agent's warrants, exercisable
until January 15, 2006 at $0.70 687,000 687,000 Nil
Stock options, with expiry dates
ranging up until February 2009
and exercise prices ranging
from $0.70 to $3.49 4,007,888 4,007,888 Nil
Transactions with Related Parties
All transactions with related parties have occurred in the normal course
of operations and are measured at the exchange amount, which is the amount of
consideration established and agreed to by the related parties. During the
eight month period ended June 30, 2004, Medoro Resources paid the following
amounts to related parties: (i) consulting fees of $23,888 and rent of $4,000
(2003 - Nil) to a company in which a director of the Company is an officer;
and (ii) consulting fees of $196,289 were paid (2003 - Nil) to Next com Italia
srl, a company in which the President of Sardinia Gold is managing director.
Off-Balance Sheet Arrangements
Medoro Resources has no off-balance sheet arrangements that have, or are
reasonably likely to have, a current or future effect on the results of
operations or financial condition of the company including, without
limitation, such considerations as liquidity and capital resources.
Changes in Accounting Policies Including Initial Adoption
Medoro Resources' unaudited interim financial statements are prepared in
accordance with Canadian generally accepted accounting principles ("GAAP").
They do not include all of the information and disclosures required by
Canadian GAAP for annual financial statements. In the opinion of management,
all adjustments considered necessary for fair presentation have been included
in these financial statements.
Additional information relating to the company is available on SEDAR at
www.sedar.com.
For further information: Peter Volk, Assistant Secretary,
1 (416) 603-4653, info(at)medororesources.com
(MRL.)
END
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