13th May 2005 07:00
European Goldfields Ltd13 May 2005 Suite 200, Financial Plaza 204 Lambert Street Whitehorse, Yukon Canada Y1A 3T2 For Immediate Release 13 May 2005 EUROPEAN GOLDFIELDS LIMITED RESULTS FOR THE FIRST QUARTER 2005 LOSS DOWN 50% VS. Q1 2004 - CASH BALANCE UP $45 MILLION European Goldfields Limited (AIM: EGU / TSX: EGU) today reported its results forthe first quarter to 31 March 2005. Highlights of the first quarter 2005 are: Corporate: • As at 31 March 2005, we had cash and cash equivalents of US$58.12million, compared to US$65.25 million as at 31 December 2004 and US$13.43million as at 31 March 2004. • With the current cash balance and projected revenue, we expect to beself-funded to the end of 2006 and beyond, covering the permitting process forour major gold and base metal projects in Greece. • In Q1 2005, we halved our loss to US$2.65 million ($0.02 per share),compared to US$5.28 million ($0.18 per share) in Q1 2004. This reduction in lossis particularly significant considering we recorded start-up costs in Greece ofUS$1.56 million in Q1 2005 compared to $Nil in Q1 2004. • In March 2005, our shares were listed on the Toronto Stock Exchange(TSX), graduating from theTSX Venture Exchange. • We completed our technical teams in Romania and Greece and recentlyrecruited Neil Hepworth from Rio Tinto. Neil has over 20 years' experience as amining engineer and his expertise in underground mining with backfill willcomplement our existing team at Stratoni. Greece: • Our 65%-owned subsidiary, Hellas Gold S.A., was awarded all environmentalpermits for its Stratoni operations. Final approval to commence miningoperations is expected shortly, to be followed by production launch. • The Stratoni mine is now ready to resume production following the recentcompletion of refurbishment work on the underground infrastructure and plant. • We have also agreed terms for the construction of a new 1,900 metre adittunnel at Stratoni to allow better access to the reserve. • We have continued to update feasibility studies and prepare new businessplans defining the way forward for Hellas Gold's major gold and base metalprojects of Olympias and Skouries. • We intend to submit our new business plans for Olympias and Skouries tothe Greek government inQ4 2005, followed by updated feasibility studies in Q1 2006. • By contract, the Greek State is committed to review the business planswithin two months of submission, and issue all necessary environmental, miningand development permits within 10 months. • We have also initiated a focused exploration programme to look for newdiscoveries in Greece. We have developed a good exploration model defining wherewe must look for further Olympias and Skouries type targets and we will beactively pursuing these opportunities in 2005. Romania: • In Romania, we published a new, better defined estimate for our 80%-ownedCertej deposit which outlined resources of 31.4 Mt grading 2.1 g/t gold and 11 g/t silver for 2.3 Moz of gold equivalent. This estimate includes a 11.4 Mt highgrade core to the deposit grading 3.4 g/t at a 2 g/t gold cut-off. This work hasunderpinned the fact that Certej can be mined more selectively to optimise anopen pit. • We have continued work on an in-house pre-feasibility study for Certej,which we expect to complete in Q2 2005. The pre-feasibility study is focused ongenerating a higher grade metallurgical concentrate, optimising the pit anddefining appropriate mining, plant and tailings infrastructure. • We were awarded a new exploration licence area, referred to as Cainel,which covers an area of 31.3 km(2) and is located contiguous with our Certej property. Exploration work continues to define the mineralised system with a view to either defining a stand-alone project or a satellite for Certej. David Reading, CEO of European Goldfields, said: "The first quarter has seenfurther progress on our Greek assets with the key environmental permits beingawarded for Stratoni, the first such permits to be granted in the country forover six years. Subject to being awarded the ensuing mining permit, we are nowready to commence production. In Romania we are pleased with the progress madeon the in-house pre-feasibility study and at increasing the grade at Certej, aswell as being excited about prospects of Cainel, the licence awarded to us inJanuary this year". About European Goldfields European Goldfields Limited is a resource company involved in the acquisition,exploration and development of mineral properties in Greece, Romania and theBalkans. Greece - European Goldfields holds a 65% interest in Hellas Gold S.A. HellasGold owns assets in Northern Greece which consist of three near-productiondeposits within 70-year mining concessions covering a total area of 317 km(2).The deposits include the polymetallic projects of Stratoni and Olympias whichcontain gold, lead, zinc and silver, and the copper-gold porphyry body referredto as Skouries. All three deposits have been well defined with over 200,000metres of drilling and the completion of feasibility studies and laterengineering studies. The total proven and probable reserves of these assets are 17.0 Moz on a goldequivalent basis(65% attributable = 11.1 Moz) from a measured and indicated resource base of21.8 Moz gold equivalent (65% attributable = 14.2 Moz). These assets representsome of the largest defined deposits in Europe. The three deposits are locatedwithin a 10 km radius of each other, making this effectively a gold and basemetal centre. Furthermore, both Stratoni and Olympias were previously inproduction and have extensive existing mining and plant infrastructure and aship loading facility on the Aegean Sea, making them near-production propertieswhich require new permits. Hellas Gold's assets also include potential revenuegenerating stockpiles and tailings located on the surface. Romania - European Goldfields holds five mineral properties located within the "Golden Quadrilateral" area of Romania, where it has embarked on a resourcedevelopment and pre-feasibility programme to underpin the value of its 80%-ownedCertej deposit and surrounding satellite bodies. The Certej deposit hostsmeasured and indicated resources of 31.4 Mt grading 2.1 g/t gold and 11 g/tsilver for 2.34 Moz of gold equivalent(80% attributable = 1.88 Moz). For additional information on the resource and reserve estimates quoted above,please refer to the Company's Resources & Reserves Declaration atwww.egoldfields.com/goldfields/resources.jsp. For further information please contact: European Goldfields:David Reading, Chief Executive OfficerDavid Grannell, Chief Financial Officer Office: +44 (0)20 7408 9534 e-mail: [email protected]: +44 (0)7703 190 652 website: www.egoldfields.com Buchanan Communications:Bobby Morse / Ben WilleyOffice: +44 (0)20 7466 5000 e-mail: [email protected]: +44 (0)7802 875 227 Forward-looking statements This news release contains certain forward-looking statements concerning theCompany's future operations, economic performances, financial condition andfinancing plans. These statements are based on certain assumptions and analysesmade by the Company in light of the its experience and its perception ofhistorical trends, current conditions and expected future developments as wellas other factors the Company believes are appropriate in the circumstances.However, whether actual results and developments will conform to the Company'sexpectations and predictions is subject to a number of risks, uncertainties andassumptions. Consequently, all of the forward-looking statements made in thisnews release are qualified by these cautionary statements, and there can be noassurance that the results or developments anticipated by the Company will berealised or, even if substantially realised, that they will have the expectedconsequences to or effects on the Company and its subsidiaries or theirbusinesses or operations. The Company undertakes no obligation and do not intendto update or revise any forward-looking statements, whether as a result of newinformation, future events or otherwise, except as may be required underapplicable law. MANAGEMENT'S DISCUSSION & ANALYSIS FOR THE THREE-MONTH PERIOD ENDED 31 MARCH 2005 The following discussion and analysis, prepared as at 13 May 2005, is intendedto assist in the understanding and assessment of the trends and significantchanges in the results of operations and financial conditions of EuropeanGoldfields Limited (the "Company"). Historical results may not indicate futureperformance. Forward-looking statements are subject to a variety of factorsthat could cause actual results to differ materially from those contemplated bythese statements. The following discussion and analysis should be read inconjunction with the Company's unaudited consolidated financial statements forthe three-month periods ended 31 March 2005 and 2004 and accompanying notes (the"Consolidated Financial Statements"). Additional information relating to the Company is available on the CanadianSystem for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com.Except as otherwise noted, all dollar amounts in the following discussion andanalysis and the Consolidated Financial Statements are stated in United Statesdollars. Overview The Company, a company incorporated in the Yukon, Canada, is a resource companyinvolved in the acquisition, exploration and development of mineral propertiesin Greece, Romania and the Balkans. The Company's Common Shares are listed on the AIM Market of the London StockExchange and on the Toronto Stock Exchange (TSX) under the symbol "EGU". Greece - As at 31 December 2004, the Company held a 65% interest (on afully-diluted basis) in Hellas Gold S.A ("Hellas Gold"). Hellas Gold owns assetsin Northern Greece which include 70-year mining concessions over a total area of317 km2 and three polymetallic near-production deposits, known as Olympias,Stratoni and Skouries, which contain proven and probable reserves. The Stratoniand Olympias deposits were previously in production and benefit from significantinfrastructure which includes underground mining development, two plants and aship loading facility on the Aegean Sea. Hellas Gold's assets also includepotential revenue generating stockpiles and tailings located on the surface. Romania - In Romania, the Company holds a 80% interest in Deva Gold S.A. and a100% interest in European Goldfields (Romania) SRL, which are in the process ofexploring their mineral properties in Romania and have not yet determinedwhether those properties contain economic reserves. Results of operations The Company's results of operations for the three-month period ended 31 March2005 were comprised primarily of activities related to the Company's regionalexploration programs in Romania and the results of operations of the Company's65%-owned subsidiary Hellas Gold. The Company continues to incur losses anduntil commercial production commences and revenues are generated, the Companywill continue to do so. The Company's results of operations for the eight most recently completedquarters are summarised in the following table: (in thousands of US 2005 2004 2004 2004 2004 2003 2003 2003dollars, except Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2per share amounts) $ $ $ $ $ $ $ $Statement of loss and deficitInterest Income 326 279 143 60 18 28 16 69Expenses 3,831 9,225 2,854 2,848 5,042 1,715 293 352Loss 2,652 8,134 2,190 3,580 5,279 1,687 277 283Loss per share (cents) 0.02 0.17 0.05 0.09 0.18 0.08 0.01 0.01Balance sheetWorking capital 57,285 63,480 29,045 31,117 14,413 5,058 5,433 6,709Total assets 300,689 304,758 86,879 83,517 67,875 45,943 29,929 29,785Non current liabilities 71,179 71,320 - - - - - -Statement of cash flowsDeferred exploration and development costs- Romania 860 2,462 1,171 943 1,394 1,097 1,088 1,134Plant and equipment- Greece 1,582 - - - - - - - The breakdown of deferred exploration and development costs per mineral propertyfor the three-month periods ended 31 March 2005 and 2004 is as follows: Three-month periods ended 31 March 2005 2004(in thousands of US dollars) $ (%) $ (%)Romanian mineral propertiesCertej 685 (80%) 1,171 (84%)Caniel 102 (12%) - (- %)Zlatna - (- %) 139 (10%)Voia 17 (2%) 28 (2%)Baita-Craciunesti 40 (5%) 42 (3%)Bolcana 16 (1%) 14 (1%) 860 (100%) 1,394 (100%)Greek mineral propertiesStratoni - (- %) - (- %)Skouries - (- %) - (- %)Olympias - (- %) - (- %) - (- %) - (- %)Total 860 (100%) 1,394 (100%) The Company incurred a loss of $2.65 million ($0.02 per share) for thethree-month period ended 31 March 2005, compared to $5.28 million ($0.18 pershare) for the same period of 2004. The following factors have contributed tothis reduction in loss: • The Company's corporate administrative and overhead expenses havedecreased by 28% from $1.25 million in Q1 2004 to $0.89 million in Q1 2005, primarily as a result of the Company being less reliant on external consultants and professional advisors following recruitment of full-time employees in 2004. Also, in Q1 2004, the Company incurred higher expenses for the listing of its common shares on the AIM Market of the London Stock Exchange, compared to expenses incurred in Q1 2005 for the listing on the Toronto Stock Exchange. • In February 2004, the Company acquired an initial 37.97% interest inHellas Gold. From 9 February 2004 to 31 March 2004, the Company's interest inHellas Gold was accounted for as an equity investment. In November 2004, theCompany completed the acquisition of shares in Hellas Gold, increasing its totalinterest from 37.97% to 55.70%, and assumed an obligation to subscribe toadditional shares in Hellas Gold, resulting in an interest of 65% on afully-diluted basis. The acquisition was accounted for as a purchase and theresults of operations of Hellas Gold were included in the consolidatedstatements of loss and deficit from 30 November 2004, the effective date of theacquisition. Hellas Gold's operating, general and administrative expenses of$1.56 million in Q1 2005 were incorporated in the Company's consolidatedstatement of loss and deficit for the period, compared to the Company's share ofloss in equity investment of $0.26 million in Q1 2004. • Effective 1 October 2004, the Company changed its functional currencyfrom the Canadian dollar to the United States dollar. Nevertheless, during Q12005, the Company retained significant cash balances in Euro in order to meet aEuro subscription obligation in Hellas Gold. Consequently, the Company recordeda foreign exchange loss of $0.99 million in Q1 2005, which resulted from astrengthening of the United States dollar against the Euro as at 31 March 2005compared to 31 December 2004.In Q1 2004, the Company realised a foreign exchange gain of $0.47 million mainlydue to the weakening of the Canadian dollar against the Euro as at 31 March 2004compared to 31 December 2003. • The Company's amortisation expense has increased to $0.26 million in Q12005 from $Nil in Q1 2004 primarily as a result of the Company acquiringsignificant assets through the acquisition of a65% interest in Hellas Gold in 2004. • In December 2003, the Company raised $15.09 million by way of a brokeredprivate placement of convertible loan notes, for which the Company recorded anon-cash expense for financing costs of $1.12 million in Q1 2004, compared to$Nil in Q1 2005. • The Company recorded a non-cash stock-based compensation expense of $0.13million in Q1 2005, compared to $3.17 million in Q1 2004. Such decrease reflectsthe fact that no share options or milestone shares were granted in Q1 2005compared to significant grants to newly hired employees in Q1 2004. • The Company recorded a credit for future income taxes of $0.71 million inQ1 2005, compared to $Nil in Q1 2004. The credit has arisen due to the Companyrecognising a future tax asset for the losses carried forward in Hellas Gold. • The Company's interest income has increased to $0.33 million in Q1 2005from $0.02 million in Q1 2004, primarily as a result of the Company holdingsignificantly higher cash balances in Q1 2005 following completion of privateplacements during 2004. Liquidity and capital resources As at 31 March 2005, the Company had cash and cash equivalents of $58.12million, compared to $65.25 million as at 31 December 2004 and $13.43 million asat 31 March 2004. As at 31 March 2005, the Company had working capital of $57.29 million, comparedto $63.48 million as at 31 December 2004 and $14.41 million as at 31 March 2004. The increase in cash and cash equivalents and working capital as at 31 March2005, compared to the balances as at 31 March 2004, resulted primarily from twoprivate placements ($93.50 million), the effects of foreign currency translationon cash ($3.75 million), the exercise of warrants and options ($3.40 million)and interest earned ($0.81 million), partly offset by the payment of the cashportion of the acquisition price for an additional 35% interest in Hellas Gold($37.01 million), operating losses ($9.47 million), deferred exploration anddevelopment costs in Romania ($5.44 million), capital raising costs ($4.32million) and capital expenditure in Greece ($1.58 million). The decrease in cash and cash equivalents and working capital as at 31 March2005, compared to the balances as at 31 December 2004, resulted primarily fromoperating losses ($3.05 million), capital expenditure in Greece ($1.58 million),deferred exploration and development costs in Romania ($0.86 million) and theeffects of foreign currency translation on cash ($1.75 million), partly offsetby the exercise of options ($0.17 million). During the three-month period ended 31 March 2005, the Company received totalproceeds of $0.17 million through the exercise of 75,000 common share options ata weighted average price of C$2.80 per share. The following table sets forth the Company's contractual obligations includingpayments due for each of the next five years and thereafter: Payments due by period (in thousands of US dollars)Contractual obligations Total Less than 1 1 - 3 years 4 - 5 years After year 5 yearsOperating lease(London office) 1,037 104 373 373 187Exploration licencespending commitments(Voia, Romania) 1,500 - 1,500 - -Total contractualobligations 2,537 104 1,873 373 187 For the coming year, the Company believes it has adequate funds available tomeet its corporate and administrative obligations (estimated at $2.94 millionfor the remainder of 2005) and its planned expenditures on its mineralproperties (estimated at $5.10 million for Romania and at $7.95 million forGreece for the remainder of 2005). Change in functional and reporting currency Effective 1 October 2004, the Company changed its functional currency from theCanadian dollar to the United States dollar. In general, this change resultedfrom a combination of a gradual increase in the operational exposure to theUnited States dollar and predominantly United States dollar based asset andinvestment base of the Company and from a gradual increase in the overallproportion of business activities conducted in United States dollars. Concurrentwith this change in functional currency, the Company adopted the United Statesdollar as its reporting currency. In accordance with accounting principlesgenerally accepted in Canada ("Canadian GAAP"), the change was effected bytranslating all assets and liabilities, at the end of the prior reportingperiods, at the existing United States/Canadian dollar foreign exchange spotrate, while income for those periods were translated at the average rate foreach period. Equity transactions have been translated at the historical rates,with opening equity on 30 June 2000, restated at the rate of exchange on thatdate. The resulting net translation adjustment has been credited to thecumulative translation adjustment account in the equity section of the balancesheet. Outstanding share data The following represents all equity shares outstanding and the number of commonshares into which all securities are convertible, exercisable or exchangeable: Preferred shares: Nil Common shares: 112,173,708Common share options: 3,720,000Common share broker warrants: 415,498Common shares (fully-diluted): 116,309,206 Outlook In Greece, the Company is currently updating the feasibility studies andpreparing new business and environmental plans defining the way forward forHellas Gold's gold and base metal projects of Olympias and Skouries. The Companywill also continue to look for new discoveries through focused explorationprogrammes. In Romania, work at Certej is now directed towards completing an in-housepre-feasibility study with specific focus on optimising metallurgical recoveriesand defining a practical open pit. The Company also continues to look at newsatellite targets around the Certej deposit with a view to adding additionalincremental ounces. At Cainel, underground channel sampling continues to definethe bigger mineralised target covering an area of 200 x 1,000 metres. Aggressivedrilling campaigns will be effected during the second half of 2005 to test theCompany's geological model and the potential for a major mineralised system. The Company also intends to continue growing its portfolio by new explorationdiscoveries and the pursuit of accretive, value enhancing acquisitions in Europeand the Balkans. Risks and uncertainties The risks and uncertainties affecting the Company are substantially unchangedfrom those disclosed in the Company's Management's Discussion & Analysis for theyear ended 31 December 2004. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
EGU.L