13th Aug 2008 08:38
SYMBOLS: UME (TSXV), UGY (AIM) CHAIRMAN'S AND CEO'S REPORTS FROM ANNUAL REPORT AND ACCOUNTS 2007/08 Uruguay Mineral Exploration Inc. ("UME" or "the Company"), a gold production andexploration company, has today posted its Annual Report and Accounts for theyear ended 31 May 2008, containing the following reports, on its website. CHAIRMAN'S REPORT Over the last year, the Company has built on the strong foundations I describedin the 2006/7 Annual Report. In his report, David Fowler explains our progress.In this report, I have summarised my view of the Company today. UME in Brief We are an exploration Company with good cash flow and an excellent pipeline ofexploration projects and potential. We are confident that our explorationactivities will achieve considerable success. In the short-term, we aim togenerate sufficient cash from our gold production to fund our explorationprogrammes until they deliver the success we expect. Based on the current workprogramme of our exploration team, we expect to update our reserves andresources statement in the first half of the 2009 calendar year. We are a well managed Company, with a talented and loyal workforce. Uruguay isan attractive place to live, work and raise families. It has good schools andhealthcare facilities and this has enabled us to attract and retain a firstclass team. Our Exploration Programme Our exploration team, working together for just over a year, is exceptionallyable and focused. Operating methodically, they conduct thorough fieldwork toidentify the best drill targets. This involves geological mapping andappropriate use of geochemistry and geophysics. Drilling starts at thecompletion of fieldwork, having indentified the drill targets with the bestchance of a successful discovery. A very high proportion of the drilling has hitmineralisation where we expected to see it, clearly demonstrating that ourapproach works. We have three main exploration objectives. The first is to find high-graderesources near the San Gregorio mill, to be blended with existing lower gradebulk resources. The second is to find one or more ore bodies in the IslaCristalina, Don Feliciano or Florida belts and to develop either a second standalone operation or transport ore to the San Gregorio plant. The third is to makea significant discovery at Lascano. Our aim is to produce 250,000 ounces of goldper year. Our Drilling Programme The drilling schedule is determined by the timing of completion of thefieldwork, generation of targets and the availability of permits. Drilling iscompleted to the extent necessary to determine the commercial viability of thearea. Having our own drill rigs and assay laboratory - with results checked byan independent lab - is a significant advantage. This enables us to schedule thedrill rigs to suit our changing needs, improving our efficiency and establishingour own priorities with no third party supplier negotiations. Operating in Uruguay Uruguay is highly prospective and economically, politically and legally soundwith excellent infrastructure such as roads, ports and communications. Whilst wehave not experienced any corruption, there is some bureaucratic inertia andexploration permits generally average two years to be granted. This has had asignificant impact on our exploration programmes, and means that our prospectingand drilling schedules are at times set by the availability of permits ratherthan by our own priorities. Outside Uruguay We are evaluating projects outside Uruguay when the following conditions aremet: -- The project is in an advanced stage of exploration, and near to the production decision stage; -- The entry cost for the project is reasonable; -- The project is in a South or Central American country which we regard as politically, legally and economically sound. -- The net present value of the project is likely to support a decision to develop an operating mine based on a reasonable set of assumptions; and -- The project is at a stage to quickly benefit from our production team's expertise and will not distract our exploration team from their work in Uruguay. Non-Gold Projects We have a number of non-gold projects, namely: -- The large magnetic and gravity anomaly that we are presently drilling at Lascano; -- Several base metal and nickel projects that are subject to farm out discussions with external parties, and -- Our diamond project that is also being discussed with outside groups. These activities are described in more detail elsewhere in this report. The Board, Staff and Shareholders Subject to shareholder approval, Ignacio Salazar, (our new Chief FinancialOfficer who will join us in September from Shell in The Hague) George Schroer,(Vice-President, Exploration) and John Sadek, (Vice-President, Operations) willjoin the Board at the shareholders' meeting in October. They are expected tomake a great contribution. At the same time, John Morris, who joined the Board in 2002 when the Company hadbarely more than a dozen employees, a wide range of potential explorationprojects and little funding, will step down. His knowledge, skills, experienceand contacts have been key to the transformation of the Company into what it istoday and I shall greatly miss his advice and support. All shareholders havemuch to thank him for. On behalf of my colleagues I thank our employees and suppliers for all theircontributions during the year. We are proud of them, and what they contributed.We also thank our shareholders for their continuing support. The Future David Fowler was appointed CEO just over two years ago. Since then, he hasassembled a first class exploration team to work with what was already a veryimpressive production group. Together they are methodically reviewing all thehistoric work that has been done, following up on prospects, identifying drilltargets and obtaining the relevant permits. Serious drilling started in Novemberlast year, and in the last few months this hard work has started to show veryreal results: -- We are having l success in discovering higher grade mineralization near to the mine and as a result, we are confident that the current plan of producing a total of 240,000 ounces of gold over the next four years will be exceeded. -- The programmes to the west and east of San Gregorio/Arenal are showing promising results, and there is good potential for discovering both western and eastern extensions to an area that has already produced well over 900,000 ounces. -- At Presidente Terra, anomalous mineralization including ore- grade intercepts have been encountered in several of the targets tested to date. -- Our drill results at Lascano are very promising and are confirming the potential for a IOCG or porphyry copper system. -- Field work at Casupa/Crucera has identified additional robust targets and drilling will start as soon as permits are granted. There are no guarantees in the mining business. However, this tangibleexploration progress indicates to me, that the disciplined approach we havetaken to exploration over the last couple of years is paying off. We are nowstarting to demonstrate the benefits to shareholders in terms of drill results.We believe that over the next year or two the Company will, under GeorgeSchroer's direction, deliver exploration success that will significantlyincrease our resources, extend the mine life, and enable us to make stridestowards achieving our target of increasing production to 250,000 ounces perannum. David Fowler also has a first rate production team in place under JohnSadek to exploit that success. Tony Shearer12 August 2008 CHIEF EXECUTIVE OFFICER'S REPORT Our strategy at UME remains clear- it is to grow our gold business. I believe wehave made good progress in 2008 towards achieving our objectives, and that infiscal 2009 this progress will be reflected in increases in resources. We have developed a four year mine plan at San Gregorio which anticipates240,000 ounces of production based on existing deposits. This establishes aclear base from which we can build through exploration, resource conversion,underground mining, process improvements and increased efficiencies. We areconfident that as a result of these initiatives actual production will exceedthe current production profile and that the mine life will be further extended. We are achieving our exploration objectives by discovering and developing highergrade resources near the mine at San Gregorio. We have added an estimated 20,000ounces of vein material to the mine plan, to be mined in the next two years,from Castrill£n, Veta Sur and Polvor£n. We have also made excellent progress inidentifying new targets along strike of the San Gregorio system capable ofadding more significant resources. In southeastern Uruguay, results atPresidente Terra and Casupa/Crucera are positive. Our prime objective in thesedistricts is for our 2009 drill campaigns to define sufficient resource for astand alone project. The Exploration Report covers these results in more detail. As we learn more about the geology and geochemistry at the Lascano project, wecontinue to believe that we have a setting capable of producing a significantdiscovery. The second phase drill campaign of 13 holes commenced late in fiscal2008 and will be ongoing through the 2009 financial year. Our target is aporphyry copper or IOCG discovery. While we enter fiscal 2009 with a challenging stock market for the junior miningsector, I believe we have much to look forward to. There is a real sense ofenthusiasm within the team based on our progress in fiscal 2008, and theexpectation that 2009 will be successful year for UME. Financial Performance UME reported a net profit after tax for the financial year to May 31 2008 of $US78 million or $US 0.16 basic earnings per share. We have elected to take aconservative position on the exploration portfolio and have written off $US 11.1million, including all remaining historical expenditures on nickel, base metalsand diamonds. Operational financial results are discussed further in theOperations Report. Operational cash flows were $US 26.5 million in 2008. Of this amount, $US 9.3million was invested in property plant and equipment, and $US 9.6 million inexploration throughout Uruguay. An additional $US 2.7 million was returned toshareholders as dividends and a further $US 0.4 million was used to repurchaseshares. We ended the year with a net increase of $US4.5 million in cashbalances. Cash on hand at year end totaled $US 18.5 million, up from $US14.0 million atthe beginning of the year. In the first quarter of the current financial year wepaid down $US 2.1 million of convertible notes, totally eliminating debt. We believe that in the coming years cash will best be invested in explorationand development activities and we have therefore taken the prudent decision tocease dividend payments. Subsequent to the end of the financial year, we haverepurchased an additional $C 0.4 million in common stock and intend to suspendthese purchases for the same reason. Operations Gold production for the full year was 90,668 ounces compared to our target of95,000 ounces. This shortfall resulted from a 10-day industrial dispute in April2008 when no production occurred, and lower than anticipated grade in the laterpart of the year. The 10-day work stoppage was disappointing, particularlybecause it occurred against a background of three years of constructive unionnegotiations. This action, by a minority of the workforce, followed thedismissal of an employee for a series of safety breaches. From UME'sperspective, the right to take disciplinary action for repeated safety breachesis fundamental to ensuring a safe work environment. That right was ultimatelyupheld in tripartite negotiations convened by the Ministry of Labour. Our major challenge in the early part of the year was the completion of the 1.2km diversion of the Arroyo Corrales. Obtaining the required permitting andcompleting this major civil work using the mining fleet while continuing tosupply ore to the plant was an important achievement and reflects well on thededication of our operations' team. The diversion allowed for the expansion ofthe Arenal pit from which 1.6 million tonnes were mined in the current financialyear. We have set ourselves high standards in workplace safety and environmentalprotection and have developed quality teams and systems in these areas. This hasresulted in the fourth consecutive year-on-year reduction in our lost timeaccident frequency rate. No major environmental incidents and continued strongrelationships with the communities in which we operate continue to be strong.The impact from the river diversion was as planned and rehabilitation was 90%completed within six months reinforcing our ability to deliver against ourobjective of minimizing impact in the areas in which we operate. Community relations continue to be very important in all aspects of ourbusiness. Some of the key aspects are: -- Working from the start with landowners to minimize any impacts from our exploration activities -- Sourcing as many of our services as possible and 94% of our employees from the communities in which we operate -- Constructively engaging with government representatives at all levels to improve the regulatory environment -- Providing support to schools and other worthy causes in our local communities One of the keys to our success with local communities has been our Expo Oroevent held every two years. This is a two-day event at the mine where employeesand suppliers exhibit and explain how the mine operates and provide tours of thesite. The event attracts in excess of 10,000 people and allows employees'families and local and national political leaders to understand and appreciateour operations. San Gregorio Development The San Gregorio district has historically produced in excess of 900,000 ouncesof gold. Our base case mine plan over the next four years shows that a further240,000 ounces will be produced, albeit at lower grades. As outlined last year,our challenge remains to develop additional resources and to look at alternativemining or processing methods to improve production levels and extend mine life. During 2008 we completed studies, test work and benchmarking of processingalternatives. This analysis confirms that a capital investment of $US 25 millionto upgrade the plant to 1.9 million tonnes per annum can be justified if afurther 2 million tonnes of ore at more than 2 g/t equivalent (about 130,000ounces) can be identified This remains a real possibility as we continue to makeprogress in exploration. Heap leach test work has now commenced and the resultsof this testing will be incorporated into future mine development scenarios asappropriate. The review of processing alternatives, in turn, identified two potentiallybeneficial enhancements to the current processing plant. The first is a $US 2.5million investment in an expanded elution circuit that, together with theaddition of oxygen to the circuit, has the potential to increase gold recoveryby half a percent and increase silver recovery from 40% to 80%. The second is$US 1 million investment to add a secondary crushing stage to increasethroughput by approximately 10%. Evaluation of these two opportunities isexpected to be completed in the first half of the 2009 financial year andimplementation would be in the second half, if justified. Our current four-year mine plan of 240,000 recovered ounces over four yearsassumes a gold price of $750 per ounce. Additional resources could convert toreserves at higher gold prices. By way of example, modeling during the yearexamined the potential of pit cutbacks to further extend the mine plan. Thismodeling demonstrated that at Arenal a pit cutback would produce additionalreserves of over 2 million tonnes at approximately 1 g/t (about 62,500 ounces)at a gold price of $800 per ounce. Initial results of potential underground mining scenarios for Arenal lead us tobelieve that underground mining is likely to produce better returns thandeepening existing pits. Deep drilling and mine planning will be completed atArenal in the first half of 2009. In the Rieles area, of San Gregorio wecurrently have a resource in excess of 1million tonnes above 1 g/t that is notincluded in the mine plan. Additional drilling and resource modeling will becompleted in this area as well as at the Omb£ and Santa Teresa deposits duringthe 2008/09 fiscal year, to try to convert additional resources to reservesthrough open pit or underground means. The San Gregorio operation represents a significant asset in that incrementalfeed for the process plant could be sourced from anywhere within Uruguay,without having to invest the significant capital required for a new plant or theneed to obtain more onerous environmental permits. Assuming a gold price of $US700 per ounce, it is estimated that the cost of transporting ore at current fuelprices from remote sources is equivalent to 0.9 g/t for every 100 kilometres ofhaulage. This represents 2.9 g/t for a project such as Presidente Terra, 320kilometres by road to the south. Transportation costs can be further reduced ifthose sources are metallurgically amenable to concentration prior to haulage. Growth Over the past two years our priority has been to achieve organic growth throughexploration discovery. While this is always challenging, we believe that we haveprogressed and there are real opportunities for discovery and value creation inour existing exploration portfolio. The area near the San Gregorio mine is structurally complex and highly anomalousfor gold mineralisation. Our focus during 2007 and 2008 has been to betterunderstand the structural setting and ore controls within the district and touse this knowledge, together with field mapping and sampling, to re-examine oldtargets and define new ones. This process has allowed us to successfully developa structural model, and target and define modest new resources at Veta A, VetaSur, Polvor£n and Castrill£n. It is also being used to define new bulk targetsalong strike to the east of Arenal in areas such as Los Castillos. Work willcontinue in these areas to define targets for drilling in the first half offiscal 2009. Our regional exploration programs have defined drill targets at seven projectsin the central, western and eastern parts of the Isla Cristalina Belt which weplan to drill in the first half of the 2009 financial year. Additional areas arealso in the pipeline to be developed as drill targets for the second half of theyear. Outside the Isla Cristalina Belt we spent most of 2007 defining targets and in2008 we restarted our drill testing. The best results to date have been obtainedat Presidente Terra with a number of good intercepts. Drilling programmes willcontinue and we are optimistic that we can convert this initial success into aresource by the end of fiscal 2009. Drilling is expected to recommence in theCasupa/Crucera district in the first half of fiscal 2009, where our objectivewill also be to define resources during 2009. The proximity of these two areas,approximately 100 kilometres apart, provides good potential for the combineddevelopment of a project in southern Uruguay. The detailed geological work completed at Lascano during 2008 confirms that wehave a relatively young intrusive - approximately 120 million years old, in arift setting. This work, together with the alteration and mineralisation profileis suggestive of an IOCG or porphyry copper setting and provides significantencouragement as we start our second phase drilling. The initial three holes inthis programme have encountered modest amounts of hydrothermal alteration andassays are pending. We also completed field visits or desktop evaluations of 10 gold developmentprojects outside Uruguay during 2008. The objective of these evaluations was andis to acquire projects which have the potential to add to our productionprofile. We also have seen a growth of project acquisition opportunities amongthe junior mining companies over the past six months, as market conditions havebecome less favourable. Conclusion We are optimistic about the future of our Company as we pursue our vision ofbecoming a leading mid-tier producer in Latin America. We have a robust cashflow from operations and a strong balance sheet with no debt, and an excellentpipeline of high potential exploration projects. Finally, I would like to thank all of those committed to the success of UME. Ouremployees and consultants, shareholders, and local communities in which weoperate have all supported the Company over the last year and we look forward tocontinuing to work together as we build towards our success over the comingyear. David FowlerChief Executive Officer12 August, 2008 Qualified Person's Statement The technical information presented in this press release has been reviewed andverified by Mr. John Sadek, Vice President Operations and a Mining Engineer, andMr. George Schroer Vice President Exploration and a Certified ProfessionalGeologist. Mr. Sadek and Mr. Schroer are the Qualified Persons for the purposesof the AIM Guidance Note on Mining, Oil and Gas Companies dated March 2006. Mr.Sadek has a Bachelor of Engineering (Mining) from the University of Sydney andis a member of the AusIMM and SME. He has over 20 years of internationalexperience in mining. Mr. Schroer has a Masters of Science in Geology fromColorado State University and is a member of SEG and AIPG. He has over 20 yearsof international experience in exploration. Forward Looking Statements All statements, other than statements of historical fact, contained orincorporated by reference in this news release, including any information as tothe future financial or operating performance of UME, constitute"forward-looking statements" within the meaning of certain securities laws,including the "safe harbour" provisions of the Securities Act (Ontario) and theUnited States Private Securities Litigation Reform Act of 1995 and are based onexpectations estimates and projections as of the date of this news release.There can be no assurance that such statements will prove to be accurate, suchstatements are subject to significant risks and uncertainties, and actualresults and future events could differ materially from those anticipated in suchstatements. Forward-looking statements include, without limitation success ofexploration activities; permitting time lines; the failure of plant; equipmentor processes to operate as anticipated; accidents; labour disputes; requirementsfor additional capital title disputes or claims and limitations on insurancecoverage. UME disclaims any intention or obligation to update or revise anyforward looking statements whether as a result of new information, future eventsand such forward-looking statements, except to the extent required by applicablelaw. ENDS The TSX Venture Exchange has not reviewed and does not accept responsibility forthe adequacy or accuracy of this news release. About Uruguay Mineral Exploration Inc. Uruguay Mineral Exploration Inc. (UME) is a gold production and explorationcompany that identifies and develops mineral opportunities in South America. UMEis a fully integrated mining company, possessing the skills necessary to exploreand develop its discoveries. UME operates San Gregorio, the only producing goldmine in Uruguay, and is the leading mineral exploration company in Uruguay withan exploration portfolio of gold, diamonds and base metal prospects, includingcopper, nickel, lead, and zinc. Uruguay Mineral Exploration Inc. is quoted in Canada (TSXV) and London (AIM) andRBC Capital Markets is its Nominated Adviser and Broker. More information can befound at www.uruguayminerals.com For further information, please contact: Uruguay Mineral Exploration IncTony Shearer, Chairman: +44 (0)20 7602 1570; [email protected] Fowler, CEO: + 598 2 6016354; [email protected] Investor/Media RelationsEmily Bruning, Shared Value Ltd: +44 (0) 20 7321 5027; [email protected] Investor Relations in North AmericaSusan Borinelli, Breakstone Group: +1 646-330-5907;[email protected] RBC Capital MarketsAndrew Smith: +44 (0) 20 7029 7882; [email protected] Wharry: +44 (0)20 7653 4667; [email protected] Copyright Business Wire 2008Related Shares:
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