23rd May 2007 17:52
Patagonia Gold PLC23 May 2007 PATAGONIA GOLD PLC PRELIMINARY RESULTS for the year ended 31 December 2006 Patagonia Gold plc announces its unaudited results for the year ended 31December 2006 Chairman's statement I am pleased to present the unaudited results for the year ended 31 December2006. It was a period of mixed fortunes for Patagonia Gold. Early in the year, theGovernment of the Province of Chubut in Patagonia announced a ban for up tothree years on virtually all mining and exploration activities in an exclusionzone. The impact on Patagonia Gold of this development is discussed fully in theManaging Director's report which follows my statement. In summary, however, ithas forced us to suspend work on the historic Huemules mine which we acquiredfully in 2005 and which we had planned to bring back into production. That constituted a major setback for the Company. While the ban is stated to betemporary in nature and while we are vigorously contesting its legality in theCourts in Argentina at the highest level, the Board decided to adopt the mostconservative approach in the presentation of the accounts for the year and hasmade a full provision against goodwill which largely represents the carryingcost of the Huemules mine. This has resulted in an impairment charge ofapproximately £14 million. This is not a write off of previously capitalisedcash expenditures incurred by the Group but of the goodwill arising from thepiecemeal acquisition of the Huemules property. As explained in our Operations report, it remains our intention to develop theHuemules mine in accordance with the highest internationally agreedenvironmental standards. In particular, we plan for development to be whollyunderground and without the use of cyanide at any stage in the process. We haveput the mine on a care and maintenance basis and are actively engaged with theauthorities and communities in Chubut with a view to resolving the issues in aconstructive manner so that we can go forward as soon as possible with thedevelopment of the mine. This we believe to be not only in the interests of ourshareholders but also in the best interests of the province, its economy and itscitizens. We have other exploration activities in the Province of Chubut which are alsoaffected by the temporary mining ban; these too have been suspended for the timebeing and the underlying costs of suspension are included in the impairmentcharge mentioned above. As reported in earlier years we also conduct exploration activities in otherprovinces in Patagonia, most notably in Santa Cruz and Rio Negro. The Provinceof Santa Cruz is host to a number of important operating gold mines as well asto a vibrant petroleum industry. It has a well developed infrastructure and apositive attitude both at government levels and in the communities to theresponsible exploitation of its mineral resources. In response to the difficulties we encountered in Chubut we have substantiallyreordered our priorities in Patagonia and it is our intention, at least for theforeseeable future, to concentrate our limited human and financial resources onthose provinces which are well disposed towards the mining industry andrecognise the benefits that flow from successful exploitation of their mineralresources. It is in this context that we were delighted to announce early in 2007 theacquisition from Barrick Gold, the world's largest gold mining company, ofBarrick's entire Santa Cruz exploration portfolio. The details of this importanttransaction are set out fully in the Operations report below. We were delightedthat Barrick, which retains the right on defined terms to buy back into anymajor development in the portfolio, decided shortly after the transaction wascompleted to convert the notes we had issued to them as partial considerationfor the acquisition into new Patagonia Gold shares with the result that Barricknow owns approximately nine per cent. of our issued share capital. We welcomethem as a shareholder and hope to build on this relationship to our mutualbenefit in future years. Our initial drilling on the newly acquired properties, which had already beenthe subject of up to four years' exploration work, has been most encouraging.Details of announcements we have made are set out in the Operations report. The financial results for the year were in line with our budget andexpectations. The loss for the year before giving effect to the impairmentcharge described above was £2,732,424 or 1.01 pence per share (2005:£2,856,653). Taking account of the impairment charge the loss for the year was£17,002,754. There was no impairment charge in the year ended 31 December 2005. With effect from 1 January 2007, when we adopted the new International FinancialReporting Standards, the Board has decided that it would be inappropriate tocontinue to hold historical goodwill as an asset. Recently we carried out a share placement which raised £1.67 million, involvingapproximately 29 million new shares at 5.75p per share. Around 71 per cent. ofthese funds were provided by Board members and their family associates. Furtherfund-raising will be required in the near future to allow Patagonia Gold tocontinue with its development programme on the highly prospective Santa Cruz andSan Juan properties. The Santa Cruz properties acquired in February 2007 have given Patagonia Gold afresh direction whilst still retaining our valuable assets in Chubut. Wecontinue to seek further acquisition opportunities and look forward to continuedexploration success in Santa Cruz this year. Finally, on behalf of the Board, I would like to thank our operational staff inSouth America for their commitment and efforts in the year and to thank ourshareholders for their continued support. We are confident that this will in duecourse be handsomely rewarded. Sir John CravenChairman23 May 2007 For more information, please contact: Bill Humphries/Richard Prickett Anthony Cardew/Tim RobertsonPatagonia Gold Plc Tel: +44 (0) 20 7930 0777Tel: + 44 (0)20 7409 7444 Fax: +44 (0) 20 7925 0647www.patagoniagold.com Email: [email protected] Symbol PGD.L Managing Director's report Executive summary 2006/2007 has been a period of contrasting fortunes for Patagonia Gold Plc(PGD). In the first half of 2006, exploration efforts were concentrated in the Chubutprovince where PGD had accumulated a substantial portfolio of highly prospectiveexploration properties over the previous three years. Having acquired 100 per cent. ownership of the historic Huemules Gold Mine inlate 2005, PGD concentrated on bringing the mine back into production as soon aspossible, so as to take full advantage of the strong metal prices which hadrisen over 250 per cent. in the previous three years. The Huemules mine, locatedsome 35 kilometres to the west of the city of Esquel, Chubut Province, containsbonanza gold and silver together with high base metals grades and had been minedfor a short period in the early 1990's at an average grade of 220 g/t gold. In addition, a substantial exploration drilling programme, totalling 7,788metres, was completed on the Crespo and Gastre projects in Chubut and on the ElMorro project in Rio Negro. Results were encouraging particularly from theWestern Veins at Crespo. In June 2006, PGD received a serious set-back to its exploration efforts inChubut, when the Province introduced a provisional law banning mining andmineral exploration activities for up to three years in a specified area to thewest side of the province. The exclusion area not only included the Huemulesmine but also 85 per cent. of PGD's exploration properties, including the Crespoproject. Accordingly, PGD moved quickly to mitigate the damage by moving management,exploration teams and support staff into the pro-mining Provinces of San Juanand Santa Cruz to explore on prospective open ground and to seek joint ventureand acquisition opportunities in these Provinces and elsewhere. All explorationactivities in Chubut were suspended and the regional office in Puerto Madryn wasclosed. PGD has maintained a small office in Esquel, Chubut, in order tomaintain a presence in the area and to be ready to reactivate projects in thatProvince when the position becomes clearer. In the meantime PGD has taken legalaction in the Argentine courts to preserve its rights. In February 2007, following several months of selective tendering process anddue diligence works, PGD announced the acquisition of Barrick's entireexploration property portfolio in the Santa Cruz province of Southern Argentina.The portfolio contained 70 expedientes (mineral titles) in six groups coveringapproximately 200,000 hectares in the highly prospective Deseado massive region.With this transaction PGD has acquired several advanced exploration propertieswith up to four years of exploration works completed on them, including theLomada de Leiva and Breccia Sofia projects which contain an in-house resource ofapproximately 500,000 ounces of gold. There is also a large area of groundcovering prospective geology with minimal previous exploration. Infill and extension drilling commenced on the Lomada de Leiva and Breccia Sofiaprojects immediately to advance the in-house resource to Canadian NationalInstrument (NI) 43-101 compliant status. In addition, exploration andconfirmation works commenced on the two other most advanced prospects, LaManchuria and El Tranquilo to define drilling targets for the next explorationseason starting in October. In San Juan PGD has entered into an Option to purchase agreement overexploration properties containing historic artisan gold mines which have notbeen explored using contemporary methodology or drilled. PGD has regained itsexploration momentum with these above acquisitions. PGD maintains a strong awareness of its responsibilities towards the environmentand existing social structures. Careful attention is given to ensure that allexploration work is carried out strictly within the guidelines of the relevantmining and environmental acts and to industry standards. PGD attempts, wherepossible, to hire local personnel and use local contractors and suppliers. PGD maintains a professional and extensive exploration commitment in Argentinawith the prime objective of discovering and developing an economical miningproject. Bill HumphriesManaging Director23 May 2007 Operations report Land holdings Patagonia Gold Plc (PGD) through its three 100 per cent. controlledsubsidiaries, Patagonia Gold SA (PGSA) and Minamalu SA in Argentina, andPatagonia Gold SCM (PGSCM) in Chile, hold exploration or mineral exploitationpermits or has under application or option to purchase the following propertyareas: Argentina Patagonia total 7,086 square kilometres Chile Region XI 88 square kilometres Chubut Province - Mining suspension The province of Chubut ratified a law on 29 June 2006 to suspend, for up tothree years, all mining activity (except for alluvial gold exploration) in aspecific area of the province of Chubut where both Patagonia Gold S.A. andHuemules S.A. were carrying out exploration activities. Patagonia Gold S.A. and Huemules S.A., both fully owned subsidiaries of PGDfiled a legal action against this provincial law through the submission of aninjunction in the Civil, Commercial and Mining Court, a legal action provided bythe law as a remedy to continue exploration activities. PGD has been advised by its Argentine lawyers that this provincial law violatesthe Company's constitutional right to perform mining and mineral explorationwithin a legal and regulated industry. The legal action has now moved through the provincial courts in Chubut and ispresently awaiting a full hearing in the Supreme Court of Justice in BuenosAires. The plans for the development of the Huemules mine for which PGD has filed anapplication for an Environmental Impact Study for the drilling phase, do notinvolve any open cast mining or the use of Cyanide. Acquisitions Santa Cruz In June 2006, PGD entered into negotiations with Barrick Exploraciones ArgentinaS.A. for their property portfolio in Santa Cruz. This was concluded in February2007 with the signing of a purchase agreement. The Company through its wholly owned Argentine subsidiary, Patagonia Gold S.A.(PGSA) has acquired the rights, title and interest in 70 mining and explorationclaims and properties previously held by Barrick Exploraciones Argentina S.A.and Minera Rodeo S.A., being subsidiaries of Barrick Gold Corporation. The initial consideration payable for the Properties has an aggregate value ofapproximately £2,572,350 and comprised (i) a cash payment by PGSA of US$800,000and (ii) the issue by the Company of £2,162,092.65 of loan notes ('Loan Notes')which were convertible into ordinary shares of 1p each in the capital of theCompany at a conversion rate of 7.125p. The Loan Notes were converted on 28February 2007 into 30,345,160 shares representing 10 per cent. of the Company'sthen issued share capital. A further cash payment of US$1.5 million will become payable by the Company upondelineation of a 200,000 oz or greater of gold or gold equivalent (NI 43-101Indicated Resource) on the La Paloma Property Group. In addition the Company hasgranted to the vendors an option to buy back up to a 70 per cent. interest inany particular Property Group upon the delineation of a greater than 2 millionoz of gold or gold equivalent (NI 43-101 Indicated Resource) on that PropertyGroup. Under the terms of the acquisition agreement PGSA has committed to complete aminimum level of expenditure of US$10 million on the Properties over a five yearperiod. The Properties The 'Barrick properties' are a highly prospective portfolio containing 70expidentes (mineral titles) in six groups covering approximately 200,000hectares in the Deseado Massif region of the Santa Cruz province in Patagonia. The volcanic plateau of the Deseado Massif is 60,000 km2 in area and hostsseveral mines and advanced projects such as Cerro Vanguardia, Mina Martha,Manantial Espejo, Huevos Verdes, and Cerro Negro as well as numerous smallerprospects and showings. These projects are low sulphidation epithermal "bonanza"vein style gold-silver deposits, the main target for exploration in this region. Santa Cruz is a mining friendly province and contains a very active petroleumindustry and accordingly all the infrastructure and understanding associatedwith exploration and mining. The closest town to the main Project area, PeritoMoreno, is serviced by bituminised all weather roads. Lomada de Leiva is the main area and was previously pattern drilled and apreliminary in house resource was calculated. Lomada de Leiva table of historic drill hole intersections Lomada de Leiva drill results +----------+---------+---------+---------+| |From |Interval | |+----------+---------+---------+---------+|Hole ID |metres |metres |Gold g/t |+----------+---------+---------+---------+|DDH-LP05 |49.00 |3.44 |3.16 |+----------+---------+---------+---------+|DDH-LP05 |86.75 |3.29 |5.34 |+----------+---------+---------+---------+|DDH-LP05 |92.00 |5.05 |2.26 |+----------+---------+---------+---------+|DDH-LP07 |36.00 |11.00 |5.33 |+----------+---------+---------+---------+|including |38.60 |1.40 |15.80 |+----------+---------+---------+---------+|DDH-LP07 |49.00 |17.00 |5.45 |+----------+---------+---------+---------+|DDH-LP11 |6.80 |3.20 |5.30 |+----------+---------+---------+---------+|DDH-LP11 |12.00 |17.60 |9.08 |+----------+---------+---------+---------+|including |15.00 |1.00 |24.70 |+----------+---------+---------+---------+|DDH-LP12 |65.90 |8.40 |1.84 |+----------+---------+---------+---------+|DDH-LP12 |78.65 |10.00 |3.13 |+----------+---------+---------+---------+|DDH-LP13 |70.30 |5.75 |1.36 |+----------+---------+---------+---------+|DDH-LP14A |105.00 |4.00 |2.85 |+----------+---------+---------+---------+|DDH-LP20 |60.50 |4.75 |3.90 |+----------+---------+---------+---------+|DDH-LP25 |21.00 |7.15 |2.71 |+----------+---------+---------+---------+|DDH-LP30 |116.65 |9.05 |2.05 |+----------+---------+---------+---------+|DDH-LP35 |81.00 |4.30 |2.08 |+----------+---------+---------+---------+|DDH-LP35 |88.35 |7.35 |4.97 |+----------+---------+---------+---------+|including |89.75 |1.40 |16.70 |+----------+---------+---------+---------+|DDH-LP36 |36.95 |12.45 |2.59 |+----------+---------+---------+---------+|DDH-LP37 |63.80 |14.70 |5.21 |+----------+---------+---------+---------+|including |74.00 |1.00 |13.30 |+----------+---------+---------+---------+|DDH-LP44 |44.00 |11.00 |3.00 |+----------+---------+---------+---------+ Gold mineralisation at Lomada de Leiva occurs in a NNE-striking, steeplyESE-dipping tabular zone (500 metres strike x 200 metres normal to strike) withreported, sometimes high grade gold up to 200 metres (vertical) from thesurface. Geology is characterised by gold mineralised breccias mostly containingangular clasts of rhyolite and occasional clasts of crustiform-colloform bandedquartz. The breccias have cut and, perhaps, destroyed earlier quartz veins andare themselves cut by at least two phases of narrow chalcedonic quartz veins andlate hematite-jarosite veining. Gold could be associated with the quartz veinclasts and/or later chalcedonic quartz veining. These features are not typicalof low sulphidation epithermal vein deposits. Another area drilled by Barrick is the Breccia Sofia zone where the followingdrill intersections were identified: Breccia Sofia drill results+---------+---------+---------+---------+| |From |Interval | |+---------+---------+---------+---------+|Hole ID |metres |metres |Gold g/t |+---------+---------+---------+---------+|DDH-LP42 |272.50 |3.00 |140.61 |+---------+---------+---------+---------+|DDH-LP47 |100.00 |12.00 |2.41 |+---------+---------+---------+---------+|DDH-LP51 |251.70 |10.00 |4.99 |+---------+---------+---------+---------+|DDH-LP54 |0.35 |17.85 |3.50 |+---------+---------+---------+---------+|DDH-LP59 |187.00 |2.00 |8.07 |+---------+---------+---------+---------+|DDH-LP63 |101.00 |2.00 |4.31 |+---------+---------+---------+---------+ The Breccia Sofia zone is characterised by millimetre-wide, gold-bearing, drusyquartz veinlets and breccia matrix that report up to bonanza gold grades (-400 g/t Au). Mineralization here is typical of a low sulphidation epithermal veinlets and stockwork deposit. The Patagonia Gold property 'Cerro Vasco' just to the north of La Palomareturned rock chip samples of 2.85m @ 44.2 g/t Au in a breccia consideredsimilar to that at La Paloma. An Environmental Impact Study to enable drillingon the property has been approved with the Mines Department. Ongoing work The Agreement with Barrick was finalised in February 2007 and in the same monthPGD commenced drilling with one diamond drill rig at Lomada de Leiva, a seconddrill rig was contracted in March 2007. The current drilling programme has beendesigned to validate, infill and extend the previous drilling. This Resource orientated drill programme contains 40 holes for an estimated5,800 metres of both diamond drilling and RC drilling. The programme includes anumber of 'scissors' and 'twins' of both the Barrick drilling and diamond to RChole comparison for quality control purposes. A programme of explorationdrilling on the periphery of the resource area contains a planned 25 holes for afurther 3,500 metres of both diamond and RC drilling. To date, 36 HQ diamond drill holes for 4,947 metres and 21 Reverse Circulation(RC) holes for 2,901 metres, have been completed. Results from the first 9 diamond drill holes are now available and significantintersections are listed in the table below. +----------+---------+---------+---------+| |From |Interval | || | | | ||Hole ID |metres |metres |Gold g/t |+----------+---------+---------+---------+|LPD-01 |9.0 |18.0 |6.87 |+----------+---------+---------+---------+|including |10.0 |10.0 |10.86 |+----------+---------+---------+---------+|LPD-02 |35.0 |21.0 |4.12 |+----------+---------+---------+---------+|including |46.0 |7.0 |5.17 |+----------+---------+---------+---------+|LPD-03 |90.0 |13.0 |7.36 |+----------+---------+---------+---------+|including |94 |6.0 |13.66 |+----------+---------+---------+---------+|LPD-04 |63.0 |8.0 |1.19 |+----------+---------+---------+---------+|and |97.0 |12.0 |1.32 |+----------+---------+---------+---------+|LPD-06 |64.0 |24.0 |3.05 |+----------+---------+---------+---------+|including |82.0 |5.0 |7.16 |+----------+---------+---------+---------+|LPD-07 |38.0 |20.0 |2.66 |+----------+---------+---------+---------+|including |48.0 |4.0 |5.89 |+----------+---------+---------+---------+|LPD-09 |73.0 |12.0 |2.01 |+----------+---------+---------+---------+|and |88.0 |10.0 |2.07 |+----------+---------+---------+---------+ At Breccia Sofia the exploration programme currently underway contains a plannedtotal of 25 holes for 2,500 metres of RC drilling. Resource NI 43-101 Chlumsky, Armbrust and Meyer L.L.C. (CAM), an international mineral resources,consulting and engineering group from Lakewood, Colorado, USA have been engagedby Patagonia Gold to complete a resource estimate, to NI 43-101, on the Lomadade Leiva Project area. As part of this study CAM will give recommendations for infill, down-dip andmetallurgical drilling at Lomada de Leiva in preparation for environmental andscoping studies. Sample pulps and coarse residues from the current drill programme have beensubmitted for initial metallurgical test work in order to quantify the recoveryfrom the ore material. Gravity extraction test work is also being undertaken. Other areas The La Manchuria and El Tranquilo properties are highly prospective and theexploration programmes being conducted were initially orientated towardsvalidation of the historic data and thereafter the preparation for drilling. La Manchuria The La Manchuria property of five expidentes covers 5,575 hectares and islocated about 130 km to the south east of the La Paloma block. Gold-silver mineralisation on the La Manchuria prospect is associated with alow-(to intermediate) sulphidation type epithermal quartz-(adularia-illite) veinsystem hosted within a shallow dipping sequence of rhyolite tuffs and underlyingandesites. Veins are strongly structurally controlled with principle veinsshowing NW to NNW strikes occurring in swarms and densely sheeted zones. Previous work has included geological mapping, grid soil sampling, geophysicstrenching (channel sampling) and drilling with 14 diamond drill holes for 2,017metres and 9 RC holes for 1,089 metres. PGD has undertaken a programme of validation and has re-sampled strategic rockchip locations as well as sawn channel samples and drill core. Results arepending. Significant potential exists in the more competent andesite, interpreted tounder-pin the rhyolite which hosts the gold-silver bearing veins which has beensurface sampled and drilled. A drill programme designed to systematically test the main zone ofmineralisation at depth is planned for October. El Tranquilo The El Tranquilo properties, which include the existing PGD property, La Bajada,cover an area of 12,000 hectares some 120 km south of La Paloma, and contains anumber of mineralised NW trending structures containing evidence for lowsulphidation epithermal hydrothermal systems including anomalous gold silver andantimony. The Breccia Valentina localised within a corridor of NW structures containsextensive anomalous gold values reported from historic channel sampling intrenches. Two zones of breccia and stock work have been identified which containvalues of: Stockwork: 44 metres @ 0.276g/t Au including 0.815g/t.Breccia: 32 metres @ 0.16 g/t Au including 0.795g/t Au The nearby existence of a paleosurface, containing silicified plant remains,confirms Breccia Valentina represents the upper section of a gold mineralisedsystem. PGD has undertaken verification sampling of the historic trenches as well asexcavated new trenches which were sawn channel sampled. Results are pending. Adrill programme is planned for November with the aim of testing the interpretedBreccia Valentina breccia at depth by a fence of diamond drill holes orientednormal to the NW strike direction. The intention is to intersect the feeder atprogressively deeper levels extending from 100 metres below the surface. The Cap Oeste prospect comprises a NW trending structure which was previouslytrenched with samples reporting anomalous gold values. Trench 4 contained 42.8 metres @ 0.913 g/t Au, including 5 metres @ 2.127 g/tAu, in Trench 5,100 metres to the north west 69.1 metres @ 0.223 g/t Au wasreported and a further 100 metres to the north west in Trench 6, 20.9 metres @0.217 g/t was reported. Further to the north west as well as to the south eastthe structure is under cover. The mineralised structure lies on a gentle slope about 30-40 metres below a subhorizontal zone of intense silicification interpreted as a silica cap thissilicification is typical of alteration which commonly develops within permeablehost rocks close to the water table within the upper portion of low sulphidationepithermal gold systems. Validation work by PGD has included the opening and resampling of historictrenches as well as excavation of additional trenches on 50 spacing. Results arepending. The recent trenching has identified the breccia and stockwork veiningover a strike of 900 metres and it is open in all directions. An RC drillprogramme is planned in October to investigate this very prospective geologicalstructure. San Juan - El Morado The two property block optioned from the San Juan owners is located in the eastof San Juan province 150 km east of San Juan capital, on the northwest slope ofthe Sierra de la Huerta, in the Bermejo river valley. The agreement provides for three annual payments of US$20,000, US$30,000 andUS$50,000 with the option to purchase outright for US$300,000 at any time duringthis three year period less 50 per cent. of any payments already made. In the El Morado Northwest zone are the historic Garabato and Sanchez II mines,exploited at the end of the 19th century and in the 1940's by the San JuanMining Company. Some 4 km along strike the El Morado Southeast zone containsthree old gold mines called Buena Fortuna, Senda and Pepa, which were exploitedin the late 1980's by the current owners. The geology of the area is predominantly schist, gneiss and amphibolites fromthe igneous-metamorphic basement of the Valle Fertil Complex, these metamorphicrocks contain discontinuous and tectonized marble horizons. The mineralizationis concentrated in auriferous quartz lenses in shear zones, the main mineralsassemblage is auriferous quartz, pyrite, chalcopyrite, galena, sphalerite andquartz with carbonates as ankerite and black (manganese) oxides. The quartz lenses occupy a sub-vertical to 75degreesNE, ESE-WNW fault planeexposed from one to tens of metres along strike and down dip, with widths from0.3 metres to a maximum of 1.8 metres contained in a metamorphic host rockvariously carbonitised and tectonised along the contact. Exploration of the properties has included reconnaissance drainage sampling androck chip sampling which returned values of up to 28g/t Au, 60 g/t Ag and over 1per cent. copper lead and zinc. A programme of detailed mapping and channelsampling is in progress in order to prepare for exploration drilling inSeptember. Exploration Drilling During 2006, PGD completed exploration drilling campaigns on three advancedexploration prospects, Crespo and Gastre in the province of Chubut and El Morroin the province of Rio Negro. A total of 84 holes for 7,788 metres generated4,949 samples for analysis. Results of the drilling at Crespo, West Veins, are sufficiently encouraging(16.18 g/t gold, 334.0 g/t silver and 5.22 per cent. zinc over individual 1metre intersections) to carry out further drilling. Results include: Crespo West and North veins Hole ID From Intersection Gold Silver Copper Lead Zinc metres metres g/t g/t percentage percentage percentage WV-02 48.0 2.0 8.44 16.8 - - -WV-07 31.0 1.0 1.01 37.1 - - 1.58WV-08 85.0 1.0 0.83 47.3 0.25 0.80 2.77WV-12 102.0 2.0 0.42 231.0 0.43 1.77 4.32WV-13 113.0 1.0 0.39 119.1 0.29 2.28 3.61NV-04 43.0 1.0 1.75 0.7 - - -GastreGAS-05 31.0 1.0 1.54 3.9 - - -GAS-10 63.0 1.0 1.66 0.9 - - -GAS-13 6.0 1.0 0.85 1.2 - - -Cerro El MorroEM-01 16.0 1.0 2.72 36.2 - - -EM-04 59.0 1.0 1.02 2.9 - - -EM-06 7.0 1.0 1.14 6.4 - - -EM-09 6.0 1.0 1.01 6.7 - - -EM-15 54.0 1.0 1.99 174.0 - - -EM-21 59.0 1.0 2.17 106.8 - - -EM-22 32.0 1.0 1.21 21.0 - - - Crespo: the Crespo Project area is located in the west of Chubut province and iscomprised of 14 claims for a total of 59,655 hectares. Exploration of this large prospective area has reached an advanced stage withall accessible areas being thoroughly explored, mapped and sampled.Drill-targets generated by this work have included the Cabana, Jasper and Crespovein zones, drilled in 2004, and the West and North vein zones, together withthe Paleosurface zone, drilled in this recent campaign. Gastre: the Gastre project is located in the north of Chubut province andcomprises 12 claims for a total of 89,330 hectares. A comprehensive stream sediment and BLEG exploration programme was completedwithin the Gastre claims and led to identification of precious and base metalsvalues in veins and sheeted vein zones in the southernmost claim blocks locatedimmediately northwest of the Navidad silver project. Further exploration was undertaken at a silver and base metals rich zone in thesouth west of the Gastre block near to the Navidad silver project. Cerro El Morro: the Cerro El Morro property is located in southeast Rio Negroprovince and comprises two claims for a total of 9,999 hectares. A comprehensive geological mapping and sampling programme, together with ageophysical survey, was completed within the claims, identifying a suite ofnorthwest-striking, narrow (mostly < 1-2 metre wide), low sulphidation,epithermal silica-quartz-adularia veins. Exploration in the area is continuing with the discovery of extensions to theCerro El Morro vein fields. A cateo application has been submitted. Other exploration As a result of the Chubut exclusion zone no further work has been conducted ateither Crespo or Huemules. The Huemules Project remains a high priority for the Company as the area is veryprospective. The Huemules vein system includes three sectors, designated Sur,Centro and Norte. At Huemules Sur the zone consists of a broad corridor ofpyritised and irregular argillised and or silicified rock up to 150 metres wide,containing multiple lenticular, gold bearing quartz veins, veinlets and quartzbreccia zones. At Huemules Norte and Centro it is commonly well-defined quartzbreccia zone of 5 to 15 metres width containing disseminated pyrite andchalcopyrite and enclosing a single discrete gold-bearing vein. CAM international mineral resources, a consulting and engineering group fromLakewood, Colorado, USA, completed an independent resource review in May 2006reporting an Inferred Resource of 364,657 tonnes @ 9.96g/t Au for a total of116,773 oz of gold and recommended a plan for expanding the resource. The Company has undertaken an evaluation of the exploration potential inArgentina. As a result exploration was initiated and continues with a high levelof activity through the expansion of PGD's exploration efforts into the'pro-mining' San Juan province (which contains the world class Veladero golddeposit). The Company has been assessing opportunities in the province and wasinvolved in the assessment of the four property blocks offered in a provincialauction. An option agreement with the owners of the El Morado property block wassigned in February 2007. In parallel to the exploration in the north of Argentina a concerted effort ofreconnaissance exploration on open ground in the Santa Cruz province has beenongoing, this has proved successful and several gold mineralised structures havebeen identified though no cateo applications have been made to date. Thepotential of Santa Cruz, which contains the Anglo Ashanti Gold Cerro Vanguardiagold-silver mine, has long been realised. PGD has been exploring both thegreenfield's exploration and property acquisition potential. 23 May 2007 The unaudited results of the Group for the full year 2006, with comparativefigures for 2005 are set out below: Consolidated profit and loss accountfor the year ended 31 December 2006 Note 2006 2005 £ £ Administrative expenses and exploration costs (2,874,619) (2,119,173)Amortisation of goodwill (783,695) (793,000)Impairment of goodwill (14,270,330) - ____________ ___________Operating loss (17,928,644) (2,912,173)Share of operating loss in associate - (29,665) ____________ ___________Total operating loss:Group and share of associate (17,928,644) (2,941,838)Interest receivable 52,295 85,185 ____________ ___________Loss on ordinary activities before taxation (17,876,349) (2,856,653)Tax on loss on ordinary activities - -Profit on disposal of HPD New Zealand Limited 873,595 - ____________ ___________Loss for the financial year on ordinary activities after taxation (17,002,754) (2,856,653) ============ ===========Loss per share (basic and diluted) 2 (6.3p) (1.1p) The unaudited position of the Group as at 31 December 2006, with comparativefigures for 2005 are set out below: Consolidated balance sheetat 31 December 2006 Note 2006 2005 £ £Fixed assetsIntangible assets - goodwill - 15,054,025Tangible fixed assets 40,214 62,379Investments 85,210 85,210 ____________ ___________Total fixed assets 125,424 15,201,614 ____________ ___________DebtorsAmounts falling due over one year 227,032 271,987 ____________ ___________Current assetsDebtors 202,682 183,877Cash at bank and in hand 966,143 147,965 ____________ ___________ 1,168,825 331,842Creditors: amounts falling due within one year (301,220) (833,161) ____________ ___________Net current assets/(liabilities) 867,605 (501,319) ____________ ___________Total assets less current liabilities 1,220,061 14,972,282Creditors: Amount falling due after more than one year - (22,105) ____________ ___________Net assets 1,220,061 14,950,177 ============ ===========Capital and reservesCalled up share capital 2,731,065 2,522,814Share premium account 23,389,188 20,577,439Profit and loss account (24,900,192) (8,150,076) ____________ ___________Equity shareholders' funds 3 1,220,061 14,950,177 ============ =========== The unaudited statement of Group total recognised gains and losses for the fullyear 2006, with comparative figures for 2005 is set out below: Consolidated statement of total recognised gains and lossesfor the year ended 31 December 2006 2006 2005 £ £Loss for the financial year (17,002,754) (2,856,653)Net exchange difference on the retranslation of net investments 238,907 16,660 ____________ ___________Total gains and losses since last annual report (16,763,847) (2,839,993) ============ =========== The unaudited cash flows of the Group for the full year 2006, with comparativefigures for 2005 are set out below: Consolidated cash flow statementfor the year ended 31 December 2006 Note 2006 2005 £ £Net cash outflow from operating activities 4 (3,111,257) (2,171,990)Returns on investments and servicing of finance 5 946,289 85,185Capital expenditure and financial investment 5 22,050 (220,731)Acquisitions and disposals 5 (25,093) (844,415) ____________ ___________Net cash outflow before use of liquid resources and financing (2,168,011) (3,151,951)Management of liquid resources 5 (612,873) 2,980,777Financing 5 3,020,000 - ____________ ___________Increase/(decrease) in cash in the year 6 239,116 (171,174) ============ =========== Notes to the preliminary results statement 1. Basis of preparation The financial information has been prepared on the same basis and using the sameaccounting policies as applied in drawing up the Company's statutory financialstatements for the year ended 31 December 2005. Publication of non statutory accounts The financial information set out above does not constitute the company'sstatutory accounts for the years ended 31 December 2006 or 2005. The statutoryaccounts for 2006 will be finalised on the basis of the financial informationpresented by the directors in this preliminary announcement and will bedelivered to the registrar of companies in due course. We anticipate that theauditor's report in relation to the 2006 statutory accounts will be (i)unqualified, (ii) will draw attention by way of emphasis of matter to theuncertainty relating to the availability of future funding to allow the Group tocontinue its intended exploration activities, and to meet its future commitmentsas explained in Note 1, and (iii) will not contain a statement under section 237(2) or (3) of the Companies Act 1985. The financial information for 2005 isderived from the statutory accounts for 2005 which have been delivered to theregistrar of companies. The auditors have reported on the 2005 accounts; theirreport was (i) unqualified, (ii) did not include a reference to any matters towhich the auditors drew attention by way of emphasis without qualifying theirreport and (iii) did not contain a statement under section 237(2) or (3) of theCompanies Act 1985. The principal accounting policies of the company have remained unchanged fromthe previous year except for the following new standards which have been adoptedfor the first time: FRS20: Share based payments FRS23: The effects of changes in foreign exchange rates FRS26: Financial instruments measurement FRS28: Corresponding amounts With the exception of FRS20, the adoption of the above mentioned accountingstandards has not had a material impact on the financial statements. Going Concern In common with many exploration companies, the Company raises finance for itsexploration and appraisal activities in discrete tranches to finance itsactivities for limited periods only. Further funding is raised as and whenrequired. The Directors have prepared cash flow information for the period ending twelvemonths from the date of approval of these financial statements. On the basis ofthis cash flow information the Directors are of the opinion that the Companywill require additional financial resources to enable the Group to undertake anoptimal programme of exploration and appraisal activity over the next twelvemonths, and to meet its commitments. Accordingly, further funds will need to beraised during 2007. These conditions indicate the existence of a materialuncertainty. Whilst the Directors are confident that the Group will be able tosecure additional funding to enable it to continue to meet its commitments asthey fall due and to undertake the programme described above for at least thenext twelve months from the date of approval of the financial statements, therecan be no guarantee that this will be the case which may cast significant doubton the Company's ability to continue as a going concern. The financialstatements do not include any adjustments, particularly in respect of tangiblefixed assets, investments, loans and provisions for winding up which would benecessary if the Company and Group ceased to be a going concern. 2. Loss per share Weighted Weighted average 2006 average 2005 number of per number of per £ shares share £ shares share Loss (17,002,754) 269,548,193 (6.3p) (2,856,653) 252,281,435 (1.1p)attributable to shareholders There is no difference between the basic and diluted loss per share. 3. Reconciliation of movements in equity shareholders' funds 2006 2005 £ £ Loss attributable to shareholders (17,002,754) (2,856,653)Exchange differences arising on retranslation 238,907 16,660Share based payments charge 13,731 -Issues of shares 3,020,000 - ____________ ___________Net decrease in shareholders' funds (13,730,116) (2,839,993)Equity shareholders' funds at beginning of year 14,950,177 17,790,170 ____________ ___________Equity shareholders' funds at end of year 1,220,061 14,950,177 ============ =========== 4. Reconciliation of operating loss to net cash outflow from operatingactivities 2006 2005 £ £ Operating loss (17,928,644) (2,941,838)Depreciation and amortisation 801,769 833,892Decrease/(increase) in debtors (158,802) (36,829)(Decrease)/increase in creditors (629,641) (78,985)Increase in other provisions - 51,770Impairment of goodwill 14,270,330 -Share based payments charge 13,731 -Settlement of convertible debt for equity 520,000 - ____________ ___________Net cash outflow from operating activities (3,111,259) (2,171,990) ============ =========== 5. Analysis of cash flows for headings netting in the cash flow statement 2006 2005 £ £Returns on investments and servicing of financeBank interest received 52,295 85,185Cash received on disposal of Glass Earth shares 893,994 - ____________ ___________ 946,289 85,185 ____________ ___________Capital expenditure and financial investmentPayments to acquire tangible fixed assets 22,050 (51,850)Funding of associate - (168,881) ____________ ___________ 22,050 (220,731) ============ ===========Acquisitions and disposalsAcquisition of additional interest in associates - (844,595)Cash acquired on acquisition of Minamalu SA - 180Disposal of HPD New Zealand Limited (25,093) - ____________ ___________ (25,093) (844,415) ============ ===========Management of liquid resourcesWithdrawals from/(increase to) short term deposits (612,873) 2,980,777 ============ ===========FinancingIssue of share capital 208,251 -Share Premium 2,811,749 - ____________ ___________ 3,020,000 - ============ =========== 6. Analysis of net funds At Foreign At 1 January exchange Non cash 31 December 2006 difference Cash flow items 2006 £ £ £ £ £Bank and cash balances 53,742 (33,811) 239,116 - 259,047Short term deposits 94,223 - 612,873 - 707,096Convertible loan notes (520,000) - - 520,000 - _________ _________ _________ _________ _________Net funds (372,035) (33,811) 851,989 520,000 966,143 ========= ========= ========= ========= ========= There were no material differences between the fair value and the book value ofthe Group's financial assets and liabilities as at 31 December 2006 and 31December 2005. 7. Post balance sheet events Acquisition of Barrick's property portfolio in Santa Cruz Argentina The Group announced on 21 February 2007 that it had acquired the rights, titleand interest in 70 mining and exploration claims and properties currently heldby Barrick Exploraciones Argentina S.A. and Minera Rodeo S.A. being subsidiariesof Barrick Gold Corporation. The initial consideration for the Properties payable to the Vendors had anaggregate value of approximately £2,572,350 and comprised (i) a cash payment byPGSA of US$800,000 and (ii) the issue by the Company of £2,162,092.65 of loannotes, convertible into ordinary shares of 1p each in the capital of the Companyat a conversion rate of 7.125p per Ordinary share. Accordingly, upon conversion,the loan notes would convert into 30,345,160 ordinary shares, representing 10per cent. of the Company's current issued share capital. (as enlarged by theissue of such shares.) To the extent not previously converted or redeemed, theLoan Notes would fall to be repaid by the Company on 20 February 2009. The LoanNotes would become redeemable by the holders thereof after 20 February 2008 andto the extent that any Loan Notes remained outstanding at such time, interestwould become payable on the outstanding Loan Notes from the commencement date atthe rate of 5.25 per cent. per annum. The Loan Notes could be converted by theVendors at any time on or after 27 February 2007 and by the Company any timeafter 31 May 2007. On 28 February 2007 the Company allotted 30,345,160 ordinary shares of 1p eachto Barrick pursuant to the conversion by the noteholders of £2,162,092.65 of theLoan Notes. A further cash payment of US$1.5 million will become payable to the Vendors uponthe delineation of 200,000 oz or greater of gold or gold equivalent on the LaPaloma Property group. In addition PGSA has granted to the Vendors an option tobuy back up to a 70 per cent. interest in any particular Property group upon thedelineation of the greater of 2 million oz of gold or gold equivalent on thatProperty group. Under the terms of the acquisition agreement, PGSA has committed to complete aminimum level of expenditure of US$10 million on the Properties over a five yearperiod. This will include a commitment of US$1.5 million in the first 18 months. Share Placing On 23 March 2007, the Company announced that it had placed 29,021,400 newordinary shares of 1p each in the Company at a price of 5.75p per share tofinance working capital and exploration expenditure. Certain of these shareswere placed with Directors, as set out below. Director Placing shares subscribed Sir John Craven 435,000Carlos Miguens 11,102,006William Humphries 1,050,000Richard Prickett 870,000Marc Sale 226,000 Exercise of Share Option On 30 April 2007, the Company allotted 1,920,506 Ordinary shares of 1p pursuantto the exercise of a share option on 16 April 2007. 8. Annual Report The Annual Report for the year ended 31 December 2006 will be posted toshareholders shortly and will also be available from the Company's websitewww.patagoniagold.com. The Annual General Meeting of the Company will be held onThursday, 28 June 2007 at 11.00 am at the Cavalry & Guards Club, 127 Piccadilly,London W1V 0PX. 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Patagonia Gold