14th Nov 2005 07:02
European Goldfields Ltd14 November 2005 Suite 200, Financial Plaza 204 Lambert Street Whitehorse, Yukon Canada Y1A 3T2 For Immediate Release 14 November 2005 EUROPEAN GOLDFIELDS LIMITED RESULTS FOR THE THIRD QUARTER 2005 PRODUCTION COMMENCES AT STRATONI - OFF-TAKE AGREEMENTS SIGNED European Goldfields Limited (AIM: EGU / TSX: EGU) today reported its results forthe third quarter to 30 September 2005. Highlights of the quarter are: • Hellas Gold awarded all necessary permits to commence mining at Stratoni. • Stratoni mill commenced production of concentrates in September 2005; underground mining started in October. • Work under way on new Stratoni decline, leading to production ramp-up next year. • Signed long-term off-take agreements for Stratoni concentrates, to generate US$114 million in revenue at current metal prices; first shipment from Stratoni port expected end November 2005. • On track to submit business plans with the Greek State in January 2006, applying for permits to develop major gold & base metals projects of Olympias and Skouries. • Finalised metallurgical studies confirming concentrate grades for Certej pre-feasibility study; reviewing development options to progress project; commissioned environmental study to apply for mining permit; finalising work to upgrade resources to reserves. • $43 million in cash assets and financial instruments at 30 September 2005. Commenting on the results, David Reading, Chief Executive Officer of EuropeanGoldfields, said: "We have achieved a major milestone in commencing productionat Stratoni in September and we are well on track to developing our other majorgold and base metals projects in Greece. In Romania, we are encouraged by theresults of our in-house pre-feasibility study underpinning the value of theproject, and we are actively pursuing opportunities to develop the projectfurther. " STRATONI - GREECE Mining permit awarded - In September 2005, European Goldfields' 65%-ownedsubsidiary, Hellas Gold S.A., was awarded by the Greek State all necessaryenvironmental and mining permits to commence mining operations at the Stratonideposit in Northern Greece. The total proven and probable reserve at Stratoni is1.923Mt grading 10.8% zinc, 8.1% lead and 190 g/t silver. Stratoni mill producing - The Stratoni mill commenced production of lead/silver& zinc concentrates in September 2005. To date, the mill has treated 14,800 drytonnes of ore with recoveries in excess of 90% lead, zinc and silver to therespective concentrates, once operations had stabilised after the start-up inproduction. Based on historical production levels which reached 450,000 tonnes per year on acontinuous shift basis, the Stratoni mine is expected to produce consistentgrades of 8-10% lead, 8-11% zinc and 200 g/t silver, with concentrator metalrecoveries consistently high at around 90%. Underground mining started - New production from underground mining started inOctober 2005. Production faces have been made available through the recentrefurbishment of the Stratoni mine and new backfill plants have beencommissioned to open up additional production areas and also for backfilling theold workings. Production of ore over the current life of mine is expected toreach the following volumes of ROM: - Year 1: 170,000 tonnes- Year 2: 250,000 tonnes- Year 3: 300,000 tonnes- Year 4: 375,000 tonnes- Year 5: 400,000 tonnes- Year 6: 400,000 tonnes Work on new decline under way - Work on a new 1,900 metre access tunnel (ordecline) at Stratoni has now commenced. The decline is being developed toprovide improved access to the Stratoni reserve and allow larger scale miningoperations to be effected by the end of Q4 2006. The new decline is expected toraise mine output with a minimal increase of labour, while removing thenecessity to build a large underground maintenance facility. The new decline will also provide access to conduct further drilling to find newresources and to upgrade the current inferred resources into additionalreserves. Sale of lead/silver & zinc concentrates - Hellas Gold commenced production in anenvironment of strong metal demand and depleting global stockpiles, especiallyfor zinc; Stratoni is the only lead & zinc start-up in 2005. In November 2005, Hellas Gold entered into off-take agreements with TrafiguraBeheer B.V., Euromin S.A. and MDIL (UK) Ltd for the sale of lead/silver & zincconcentrates produced at Stratoni. Under the off-take agreements, Hellas Goldhas agreed to sell concentrates representing approximately 90% of all projectedproduction for 2005, 2006 and 2007, and 65% of lead/silver and 25% of zincproduction in 2008. The agreements provide for fixed penalties and treatmentcharges for the contract term. Hellas Gold intends to sell any excessproduction on the spot market. At current metal prices, the off-take agreements are expected to generate US$114million in total gross revenue by the end of 2008. The final net income willtake into account operating costs, capital depreciation and Hellas Gold'senvironmental commitments. The first shipment of concentrates is expected by the end of November 2005,carried by vessels loaded at Hellas Gold's refurbished Stratoni port. Refurbished infrastructure and port facility - In addition to existingunderground access and tailings facilities, Stratoni already benefits fromrecently refurbished and fully operational infrastructure such as a mill andflotation plant, offices and a laboratory, together with a port loading facilityfor vessels of up to 8,000 tonnes capacity, all located on the coast atStratoni. Exploration upside - Stratoni has a mine life of six years based on currentreserves, but the deposit is open in all directions and there is good potentialto expand the resource and reserve base. Hellas Gold intends to initiate anaggressive exploration programme, with drilling expected to start in Q1 2006. The Stratoni mine comprises two deposits that are about 2 km apart, the MavresPetres deposit to the west and the Madem Lakkos to the east. Both deposits arehosted by marble units. The exploration programme will mainly focus on the areasof high potential between Mavres Petres and Madem Lakkos. The new Stratonidecline is ideally placed to allow the exploration of this prospective area,which remains largely unexplored. In addition, further exploration potential exists to the west of Mavres Petreswhere the upper marble horizon is known to continue. Previous explorationdrilling (seven holes for 2,008 metres along two lines) 800 metres west ofMavres Petres at the Piavitsa target returned encouraging results, being a zoneof massive sulphide mineralisation grading 3 to 14 g/t gold, 58 to 198 g/tsilver and combined lead & zinc ranging between 1% and 20% over true widths of 2metres to 7 metres. OLYMPIAS & SKOURIES - GREECE Hellas Gold is on track to submit new business plans with the Greek State inJanuary 2006, applying for environmental and mining permits to develop its majorgold & base metals projects of Olympias and Skouries. By contract, the GreekState is committed to review the business plans within two months of submission,and issue all necessary environmental, mining and development permits within 10months. Olympias - The Olympias deposit is located 8 km north of the Stratoni mine and 2km west of the Aegean Sea. Olympias is a polymetallic deposit containing 14 Mtproven & probable reserves grading 8.6 g/t gold, 120 g/t silver, 3.9% lead and5.2% zinc. Olympias benefits from extensive mining and plant infrastructurealready in place, and a port facility nearby at Stratoni. New mining schedules for Olympias have now been completed. Development atOlympias is expected to progress in various phases, commencing with the sale ofexisting surface concentrates (representing 270,845 tonnes grading +20 g/t gold)and small scale exploitation of the higher grade Eastern and Upper West zonesover a three-year period, followed by the processing of surface tailings (2.4 Mtgrading 3.4 g/t gold) and the expansion of the underground infrastructure inorder to increase production to 750,000 - 1 million tonnes per year to exploitthe total reserve. Hellas Gold has commissioned Outokumpu and Aker Kvaerner to undertakemetallurgical studies to define viable process options for the Olympias deposit.Aker Kvaerner has completed a pre-feasibility level study on treating the goldbearing, refractory, pyrite concentrate utilising a process route comprisingflotation, roasting, autoclaving and leaching which was based on previoustestwork and studies. The Outokumpu study is progressing according to plan andcompletion is expected in Q4 2005. Hazen Research have also been commissioned tocarry out confirmatory proving test work which is scheduled for completion earlyin 2006. The economic parameters from the various studies and options are beingincluded into in-house generated economic models which are being continuouslyrefined as more data becomes available. On completion, a decision will be maderegarding the preferred option which will be taken to produce a business plan inJanuary 2006 and an updated feasibility study. Cognizance is being taken of the historical issues relating to previousfeasibility studies and permitting. Concerted and focused efforts are being madeto engage all potential stakeholders and interested parties in the decisionprocess. In addition to the mining and metallurgical work, studies are also in progressinvolving Greek consultants and Hellas Gold personnel in order to define thebest site for tailings management facilities and to complete the environmentalbase line studies. A centralised processing and tailings facility is preferredinvolving both the Stratoni and Olympias projects. An effort will be made in thecurrent studies to minimise surface rock waste and tailings by utilisingunderground fill methods. The environmental base line and tailings studies arecurrently in progress. Skouries - The Skouries deposit is a typical gold-copper porphyry deposit whichforms a near vertical pipe and is located 17 km southwest of Olympias. Skouriesis located on a high plateau with no habitation in the immediate vicinity.Skouries has 130 Mt probable reserves grading 0.9 g/t gold and 0.6% copper. Due to their extensive historical knowledge of the project, Steffen, Robertsonand Kirsten (SRK) have been retained to assist on the completion of miningoptions for the Skouries project. SRK's work has concluded that the mostappropriate mining solution would include a combination of open pit andsub-level caving to optimise the production rates, expected to reach 8 milliontonnes of ROM per year, and allow maximum flexibility for more selectiveexploitation. The results of the SRK and associated studies are being includedinto the in-house generated economic model to confirm these findings. A Golder Associates study is also investigating options for backfill of miningexcavations with rock waste and, where appropriate, tailings in order tominimise surface land use. The Skouries plant facility is expected to generate saleable gold dore andcopper/gold concentrates. The plant capacity has been the subject of a studycompleted by Aker Kvaerner which updated the capital and operating costsspanning the various throughputs of the process facility to dovetail with themining production plans being developed. Additional technical studies on the Skouries deposit are currently focusing onupdating the environmental baseline work within the project area and determiningthe appropriate site for the tailings management facility. This work has beenundertaken by Greek consultancy groups (ADK and Enveco SA) in collaboration withHellas Gold personnel. Finally, recent metallurgical test work on oxide material from sample rejects ofprevious diamond cores at Skouries confirmed the copper and gold recoveriesoutlined in the original Aker Kvaerner feasibility study. For instance, goldrecovery is expected to exceed 80% after the first year of production with thegravity and flotation circuits that will be used. ROMANIA Certej - In July 2005, European Goldfields completed an in-house pre-feasibilitystudy on its 80%-owned Certej project in the Southern Apuseni Mountains ofRomania. All the technical and financial components of a full pre-feasibilitystudy have now been successfully completed. The study has resulted in: - Confirmation that a concentrate can be produced with high grades - An optimised open pit with low strip ratios - The definition of sites for infrastructure and tailings disposal - A clear understanding of all work required to complete an environmental impact assessment and achieve all necessary permitting. The initial indications from the financial evaluation work show that the projectwould support the necessary capital investment at realistic, long-term metalprices for gold and silver. European Goldfields is finalising its metallurgical studies, which confirm thata gold bearing pyrite concentrate can be produced with grades averaging 22 g/tgold and +150 g/t silver. These studies have also highlighted that theconcentrate produced in the early years of mining from the open pit will have agrade approaching 30 g/t gold and up to 500 g/t silver with a gold recovery inexcess of 90%. It is envisaged that the project could mine and process 2.5 Mt to 3.0 Mt peryear over approximately nine years. At the proposed production rates, this wouldyield approximately 225,000 tonnes of concentrate per year with a gold recoveryof about 87.5%. European Goldfields is actively reviewing development options to progress theproject forward, such as identifying a long-term market for the high grade, gold/silver flotation concentrate to be produced at Certej, or confirming a processroute for producing gold dore on site. European Goldfields is also finalising work to upgrade the current Certejresources into reserves. Finally, European Goldfields recently commissioned anenvironmental impact assessment, expected in Q2 2006, in order to apply for amining permit for Certej and complete a full feasibility study. Ongoing exploration - Further exploration work in Romania is now focused ondefining higher grade (+2.5 g/t gold) satellites within a 10 km radius of Certejwhich when concentrated can sweeten the Certej material. The satellite targetscomprise open pitable mineralisation within the Certej licence area and inEuropean Goldfields' adjacent Baita-Craciunesti licence area. In addition,surface dumps are being evaluated for their tonnage grade and metallurgicalcharacteristics. For further information please contact: European Goldfields:David Reading, Chief Executive OfficerDavid Grannell, Chief Financial OfficerOffice: +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 5000Mobile: +44 (0)7802 875 227 e-mail: [email protected] The Sherbourne GroupForbes West e-mail: [email protected]: +1 416 203 2200 Resources & Reserves Parameters Patrick Forward, General Manager, Exploration of European Goldfields, was theQualified Person under Canadian National Instrument 43-101 responsible forreviewing this news release. 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. The quantity and grade of the Piavitsa target are conceptual in nature, therehas been insufficient exploration yet to define a mineral resource on theproperty and it is uncertain if further exploration will result in discovery ofa mineral resource on the property. Forward-looking Statements Certain information included in this document, including any information as tothe Company's future financial or operating performance and other statementsthat 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 andassumptions that, while considered reasonable by management, are inherentlysubject to significant business, economic and competitive uncertainties andcontingencies. The Company cautions the reader that such forward-lookingstatements involve known and unknown risks, uncertainties and other factors thatmay cause the actual financial results, performance or achievements of theCompany to be materially different from its estimated future results,performance or achievements expressed or implied by those forward-lookingstatements and the forward-looking statements are not guarantees of futureperformance. These risks, uncertainties and other factors include, but are notlimited to: changes in the worldwide price of gold, base metals or certain othercommodities (such as fuel and electricity) and currencies; ability tosuccessfully integrate acquired assets; legislative, political or economicdevelopments in the jurisdictions in which the Company carries on business;operating or technical difficulties in connection with mining or developmentactivities; the speculative nature of gold and base metals exploration anddevelopment, including the risks of diminishing quantities or grades ofreserves; and the risks involved in the exploration, development and miningbusiness. These factors are discussed in greater detail in the Company'sManagement's Discussion & Analysis for the year ended 31 December 2004 filed onSEDAR at www.sedar.com. The Company disclaims any intention or obligation toupdate or revise any forward-looking statements whether as a result of newinformation, future events or otherwise. MANAGEMENT'S DISCUSSION & ANALYSIS FOR THE THREE- AND NINE-MONTH PERIODS ENDED 30 SEPTEMBER 2005 The following discussion and analysis, prepared as at 14 November 2005, isintended to assist in the understanding and assessment of the trends andsignificant changes in the results of operations and financial conditions ofEuropean Goldfields Limited (the "Company"). Historical results may notindicate future performance. Forward-looking statements are subject to avariety of factors that could cause actual results to differ materially fromthose contemplated by these statements. The following discussion and analysisshould be read in conjunction with the Company's unaudited consolidatedfinancial statements for the three- and nine-month periods ended 30 September2005 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 under the Yukon Business Corporations Act,is a resource company involved in the acquisition, exploration and developmentof mineral properties in 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 - The Company holds a 65% interest in Hellas Gold S.A. ("Hellas Gold").Hellas Gold owns assets in Northern Greece which consist of three depositswithin 70-year mining concessions covering a total area of 317 km(2). Thedeposits 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. These assets represent some of the largest defined deposits in Europe. The threedeposits are located within a 10 km radius of each other, making thiseffectively a gold and base metals centre. Furthermore, both Stratoni andOlympias were previously in production and have extensive existing mining andplant infrastructure and a ship loading facility on the Aegean Sea. In September 2005, Hellas Gold resumed production at Stratoni following theaward 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 the firstyear of full scale production, steadily increasing to 400,000 tonnes per annumby year five. Hellas Gold is in the process of applying for similar permits for Olympias andSkouries. Hellas Gold's assets also include potential revenue generatingstockpiles and tailings located on the surface. Romania - The Company holds five mineral properties located within the "GoldenQuadrilateral" area of Romania through a 80% interest in Deva Gold S.A. and a100% interest in European Goldfields Deva SRL, which are in the process ofexploring their mineral properties and have not yet determined whether thoseproperties contain economic reserves. The Company's primary focus is to advanceits 80%-owned Certej deposit. The Company has recently completed an in-housepre-feasibility study underpinning the value of the Certej deposit. Results of operations The Company's results of operations for the three- and nine-month periods ended30 September 2005 were comprised primarily of activities related to the resultsof operations of the Company's 65%-owned subsidiary Hellas Gold in Greece andthe Company's regional exploration programs in Romania. The Company continues toincur losses and until significant revenues are generated, the Company willcontinue to do so. The Company's results of operations for the eight most recently completedquarters are summarised in the following table: 2005 2005 2005 2004 2004 2004 2004 2003(in thousands of US dollars, Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4except per share amounts) $ $ $ $ $ $ $ $Statement of loss and deficitSales - 57 - - - - - -Interest income 272 326 326 279 143 60 18 28Expenses 3,536 2,230 3,831 9,225 2,854 2,848 5,042 1,715Loss 2,726 723 2,652 8,134 2,190 3,580 5,279 1,687Loss per share 0.02 0.01 0.02 0.17 0.05 0.09 0.18 0.08Balance sheetWorking capital 39,171 49,544 57,285 63,480 29,045 31,117 14,413 5,058Total assets 295,914 298,948 300,689 304,758 86,879 83,517 67,875 45,943Non current liabilities 70,053 71,056 71,179 71,320 - - - -Statement of cash flowsDeferred exploration anddevelopment costs - Romania 1,068 893 860 2,462 1,171 943 1,394 1,097Deferred development costs - Greece 439 891 - - - - - -Plant and equipment - Greece 2,506 2,453 1,582 - - - - - The breakdown of deferred exploration and development costs per mineral propertyfor the three- and nine-month periods ended 30 September 2005 and 2004 is asfollows: Nine-month periods ended 30 September Three-month periods ended 30 September 2005 2004 2005 2004(in thousands of US dollars) $ (%) $ (%) $ (%) $ (%)Romanian mineral propertiesCertej 1,655 (59%) 2,624 (78%) 379 (35%) 770 (66%)Cainel 802 (28%) - (-%) 459 (43%) - (-%)Zlatna - (-%) 250 (7%) - (-%) 2 (-%)Voia 46 (2%) 108 (3%) 19 (2%) 31 (3%)Baita-Craciunesti 255 (9%) 382 (11%) 181 (17%) 357 (30%)Bolcana 59 (2%) 12 (1%) 30 (3%) 11 (1%) 2,817 (100%) 3,376 (100%) 1,068 (100%) 1,171 (100%)Greek mineral propertiesStratoni 410 (31%) - (- %) 154 (35%) - (- %)Skouries 569 (43%) - (- %) 167 (38%) - (- %)Olympias 351 (26%) - (- %) 118 (27%) - (- %) 1,330 (100%) - (- %) 439 (100%) - (- %)Total 4,147 (100%) 3,376 (100%) 1,504 (100%) 1,171 (100%) The Company incurred a loss of $6.10 million ($0.05 per share) for thenine-month period ended 30 September 2005, compared to $11.05 million ($0.26 pershare) for the same period of 2004. The Company incurred a loss of $2.73 million($0.02 per share) for the three-month period ended 30 September 2005, comparedto $2.19 million ($0.05 per share) for the same period of 2004. The following factors have contributed to this large reduction in loss for thenine-month period ended 30 September 2005 and small increase in loss for thethree-month period ended 30 September 2005, compared to the same periods of2004: • The Company recorded revenues of $0.06 million in the firstnine months of 2005 and Nil in Q3 2005 for the sale of a stockpile ofconcentrates by Hellas Gold, compared to $Nil for the same periods of 2004. • The Company's corporate administrative and overhead expenseshave decreased from $4.30 million in the first nine months of 2004 and $1.12million in Q3 2004, to $2.09 million and $0.50 million, respectively, for thesame periods of 2005, primarily as a result of the Company's newly adoptedpractice of recharging costs and overheads to its operating subsidiaries in2005. Also, in the first nine months of 2004, the Company incurred higherexpenses for the listing of its common shares on the AIM Market of the LondonStock Exchange, compared to expenses incurred in the same period of 2005 for thelisting on the Toronto Stock Exchange. • In February 2004, the Company acquired an initial 37.97%interest in Hellas Gold. From 9 February 2004 to 30 June 2004, the Company'sinterest in Hellas Gold was accounted for as an equity investment. In November2004, the Company completed the acquisition of shares in Hellas Gold, increasingits total interest from 37.97% to 55.70%, and assumed an obligation to subscribeto additional 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$5.49 million in the first nine months of 2005 and $2.53 million in Q3 2005 wereincorporated in the Company's consolidated statement of loss and deficit for theperiod, compared to the Company's share of loss in equity investment of $0.48million and $(0.55) million, respectively, for the same periods of 2004. HellasGold's operating, general and administrative expenses in the first nine monthsof 2005 are mostly attributable to costs relating to the start of production atStratoni in September 2005. • Effective 1 October 2004, the Company changed its functionalcurrency from the Canadian dollar to the United States dollar. Nevertheless,during the first nine months of 2005, the Company retained significant cashbalances in Euro in order to meet a Euro subscription obligation in Hellas Goldin Q1 2005. Hellas Gold also retained significant cash balances in Euro in orderto meet operating, general and administrative expenses. Consequently, theCompany recorded a foreign exchange loss of $0.90 million in the first ninemonths of 2005 and a small gain of $0.03 million in Q3 2005. The loss resultedfrom a strengthening of the United States dollar against the Euro as at 30September 2005 compared to 31 December 2004. The Company realised a foreignexchange loss of $0.76 million in the first nine months of 2004 and $1.30million in Q3 2004, mainly due to the strengthening of the Canadian dollaragainst the Euro as at 30 September 2004 compared to 31 December 2003. • The Company's amortisation expense has increased to $0.42million in the first nine months of 2005 and $0.08 million in Q3 2005, from$0.02 million and $0.02 million, respectively, for the same periods of 2004,primarily as a result of the Company acquiring significant assets through theacquisition of a 65% interest in Hellas Gold in 2004. • In December 2003, the Company raised $15.09 million by way of abrokered private placement of convertible loan notes, for which the Companyrecorded a non-cash expense for financing costs of $1.12 million in the firstnine months of 2004 and $Nil in Q3 2004, compared to $Nil for the same periodsof 2005. • The Company recorded a non-cash stock-based compensationexpense of $0.77 million in the first nine months of 2005 and $0.45 million inQ3 2005, compared to $4.54 million and $0.42 million, respectively, for the sameperiods of 2004. Such decrease in the first nine months of 2005 reflects thefact that fewer share options and no milestone shares were granted in thatperiod compared to the same period of 2004, and that the cost of share optionsgranted in 2005 has been amortised according to the vesting periods of suchshare options, in contrast with the share option granted in 2004 which, for themost part, did not have vesting periods. • The Company recorded a credit for future income taxes of $1.31million in the first nine months of 2005 and a debit of $0.47 million in Q32005, compared to a debit of $0.05 million and $0.03 million, respectively, forthe same periods of 2004. The credit for the first nine months of 2005 hasarisen due to the Company recognising a future tax asset for the losses carriedforward in Hellas Gold. The debit for Q3 2005 has arisen due to Hellas Goldcapitalising a portion of its costs resulting in a decrease of the future taxasset. • The Company's interest income has increased to $0.92 million inthe first nine months of 2005 and $0.27 million in Q3 2005, from $0.22 millionand $0.14 million, respectively, for the same periods of 2004, primarily as aresult of the Company holding significantly higher cash balances in the firstnine months of 2005 following completion of private placements during 2004. Liquidity and capital resources As at 30 September 2005, the Company had cash and cash equivalents of $39.07million, compared to $65.25 million as at 31 December 2004 and $28.79 million asat 30 September 2004. As at 30 September 2005, the Company had working capital of $39.17 million,compared to $63.48 million as at 31 December 2004 and $29.05 million as at 30September 2004. The increase in cash and cash equivalents as at 30 September 2005, compared tothe balances as at 30 September 2004, resulted primarily from one privateplacement ($76.73 million), the exercise of warrants and options ($1.31million), interest earned ($1.20 million), a net increase in accounts payablevs. accounts receivable ($0.96 million) and the redemption of short-terminvestments ($0.08 million), offset by the payment of the cash portion of theacquisition price for an additional 35% interest in Hellas Gold ($36.66million), operating losses ($10.33 million), capital expenditure in Greece($6.54 million), deferred exploration and development costs in Romania ($5.28million), capital raising costs ($4.37 million), funds pledged as collateral toguarantee environmental commitments at Stratoni ($3.61 million), the effects offoreign currency translation on cash ($1.47 million), development costs inGreece ($1.33 million) and purchase of equipment ($0.01 million). The decrease in cash and cash equivalents as at 30 September 2005, compared tothe balances as at 31 December 2004, resulted primarily from operating losses($6.65 million), capital expenditure in Greece ($6.54 million), the effects offoreign currency translation on cash ($4.36 million), funds pledged ascollateral to guarantee environmental commitments at Stratoni ($3.61 million),deferred exploration and development costs in Romania ($2.82 million), a netincrease in accounts receivable vs. accounts payable ($1.48 million),development costs in Greece ($1.33 million), purchase of equipment ($0.08million) and capital raising costs ($0.01 million), offset by interest earned($0.93 million) and the exercise of options ($0.17 million). During Q3 2005, Hellas Gold pledged $3.61 million (€3 million) to the NationalBank of Greece as collateral for a Letter of Guarantee issued by the NationalBank of Greece to the Greek Ministry of Development to guarantee Hellas Gold'senvironmental commitments under its mining permit at Stratoni. The Letter ofGuarantee expires on 31 December 2010. During the nine-month period ended 30 September 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) Less than 1Contractual obligations Total year 1 - 3 years 4 - 5 years After 5 yearsOperating lease (London office) 980 187 373 373 47Exploration licence spendingcommitments (Voia, Romania) 1,470 - 1,470 - -Total contractual obligations 2,450 187 1,843 373 47 For the coming year, the Company believes it has adequate funds available tomeet its corporate and administrative obligations (estimated at $0.74 millionfor the remainder of 2005) and its planned expenditures on its mineralproperties (estimated at $1.10 million for Romania and at $1.75 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: Common shares: 112,173,708Common share options: 4,593,500Restricted share units: 950,000Common shares (fully-diluted): 117,717,208 Preferred shares: Nil On 14 November 2005, the Company granted 950,000 restricted share units ("RSUs")under the Company's Restricted Share Unit Plan to David Reading (CEO). The RSUsare redeemable for an equal number of common shares of the Company pursuant tothe following vesting schedule: 200,000 RSUs on 31 December 2005, 400,000 RSUson 31 December 2006 and 350,000 RSUs on 31 December 2007. The RSUs vesting in2005 were issued in recognition of milestones achieved during the year,including the building of a new management and technical team, the commencementof production at Stratoni and the completion of an in-house pre-feasibility atCertej. Outlook Greece - In September 2005, Hellas Gold resumed production at Stratoni followingthe 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 the firstyear of full scale production, steadily increasing thereafter. Hellas Gold is on schedule for completion of all studies related to producingnew business plans for its major gold & base metals projects of Olympias andSkouries. Hellas Gold intends to submit new business plans and environmentalstudies for Olympias and Skouries to the Greek government in January 2006,followed by updated feasibility studies later in Q1 2006. By contract, the GreekState is committed to review the business plans within two months of submission,and issue all necessary environmental, mining and development permits within 10months. The Company will also continue to look for new discoveries through focusedexploration programmes. Romania - In July 2005, the Company completed an in-house pre-feasibility studyon its 80%-owned Certej project. The study confirms that a concentrate can beproduced with high grades. The initial indications from the financial evaluationwork show that the project could support the necessary capital investment atrealistic, long-term metal prices for gold and silver, assuming a sustainablemarket can be established for the sale of concentrates or a suitable processroute for producing gold dore on site can be identified. The Company continues to develop the metallurgical testwork programme which isdirected at improving the Certej concentrate quality while maintaining high goldrecovery, as well as conducting focused exploration programmes to expand theresource base. The metallurgical work is also investigating the feasibility ofproducing gold dore on site by a cost effective process design. An internalmarketing study to explore potential buyers for the Certej concentrate is alsoin progress. The objective is to accomplish all of this work by Q2 2006.Completion of a full feasibility study will require an environmental impactassessment and more detailed engineering design. Environmental base line studywork by Romanian consultant ECOIND is underway. 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 filed on SEDAR at www.sedar.com. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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