27th Apr 2005 07:01
European Goldfields Ltd27 April 2005 PART 1 Suite 200 Financial Plaza 204 Lambert Street Whitehorse, Yukon Canada Y1A 3T2 For Immediate Release 27 April 2005 RESULTS FOR 2004 TRANSFORMING YEAR IN 2004 - PRODUCTION EXPECTED TO COMMENCE IN 2005 European Goldfields Limited (AIM: EGU / TSX: EGU), a resource company involvedin the acquisition, exploration and development of mineral properties in Greece,Romania and the Balkans, today reported its results for the financial year ended31 December 2004. European Goldfields had a transforming year in 2004. During the period, thecompany evolved from a junior resource business with a single project in onecountry, to a multi-million ounce entity hosting feasibility and mining assets.In addition, we are now poised to go into production at Stratoni, providing aspringboard for further growth opportunities in South East Europe and theBalkans. The Year 2004 was a landmark one for our company during which we achieved thefollowing significant milestones: • We acquired a 65% interest in Hellas Gold for a total consideration of US$150 million, representing approximately US$11 per gold equivalent ounce of resources. • The company now holds a majority interest in four gold and base metal deposits hosting over 24 Moz of resources and 17 Moz of reserves on a gold equivalent basis. These assets have significant existing mining infrastructure, represent some of the largest defined deposits in Europe and two of them have previously been in production. • Two significant listings have been achieved - firstly the London AIM listing completed in March 2004 and secondly our graduation to the main board in Toronto (TSX) in March 2005. • The market capitalisation of European Goldfields has increased fivefold during 2004 and now stands in excess of US$215 million. • Our fund raisings in 2004 have established solid financial foundations for the future growth of our business. European Goldfields and Hellas Gold had over US$65 million in cash at year end. With the current cash balance and expected revenue from Stratoni mining operations and sale of Olympias surface concentrates, we expect to be self-funded to the end of 2006 and beyond, covering all corporate and exploration activities in Romania, as well as the permitting and updated feasibility studies associated with our major gold and base metal projects in Greece. • The appointment of Dimitrios Koutras as non-executive Chairman has consolidated the partnership with Aktor S.A. in Greece. Aktor is the largest construction company in Greece and was a major contributor in the successful 2004 Olympic Games through their construction activities. • We recently announced the awarding of environmental permits for our Stratoni operations - the first such permits granted in Greece for over six years. • The first European Goldfields mining project, Stratoni, is about to commence production. Stratoni has a six year life based on current reserves, boasts attractive grades of 17-20% combined lead & zinc and 200 g/t silver and has good potential for expanding the current reserve and resource base. • The feasibility studies for our major gold and base metal projects of Olympias and Skouries are currently being updated to yield viable and permittable development options which are designed to optimise exploitation of resources, including over 9.3 Moz of gold, 60.1 Moz silver, 1.8 Mt of combined lead and zinc and over 1 Mt of copper. • In Romania, we have breathed new life back into our projects with the recent update of a new, better defined 2.3+ Moz gold equivalent resource at Certej and the near completion of an in-house pre-feasibility study. A new licence area, referred to as Cainel, which was awarded in January 2005 against strong competition, is located contiguous with our Certej deposit and hosts high grade, quartz lode and lower grade disseminated epithermal mineralisation. • European Goldfields has commenced the evolution to an operating company by building a new management team involving the recruitment of a new CEO, new non-executive directors and a new core technical team with a proven track record, and finally the expansion and restructuring of teams in Romania and Greece to support and develop our projects. Hellas Gold - "an accretive acquisition" The acquisition of the Hellas Gold assets was part of a long-term strategyformulated by the board. The strategy was designed to turn European Goldfieldsinto a major company in Europe with producing mines and the ability to growthrough the acquisition of additional projects and the leveraging of itspartnerships in South East Europe and the Balkans. In February 2004, we acquired an initial 30% interest in Hellas Gold and inNovember 2004 an additional 35%, increasing our total interest to 65% on a fullydiluted basis. The total consideration paid for our 65% interest in Hellas Goldwas US$150 million, representing approximately US$11 per gold equivalent ounceof measured and indicated resources or approximately US$14 per gold equivalentounce of proven and probable reserves. Some of the largest assets in South East Europe The Hellas Gold assets are located in Northern Greece and consist of threenear-production deposits within 70-year mining concessions covering a total areaof 317 km(2). The deposits include the polymetallic projects of Stratoni andOlympias which contain gold, lead, zinc and silver, and the copper-gold porphyrybody referred to as Skouries. All three deposits have been well defined withover 200,000 metres of drilling and the completion of feasibility studies andlater engineering studies. The total proven and probable reserves of these assets are 17.0 Moz on a goldequivalent basis (65% attributable = 11.1 Moz) from a measured and indicatedresource base of 21.8 Moz gold equivalent (65% attributable = 14.2 Moz). Theseassets 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 metal centre. Furthermore, both Stratoni andOlympias were previously in production and have extensive existing mining andplant infrastructure, making them near-production properties which require newpermits. Finally, an 8,000 tonne ship loading facility is located at the Stratoni portnext to the mill giving Hellas Gold the ability to ship concentrates offshorefor processing and sale. This is a significant asset for our business as all ofthe projects produce concentrate material which is saleable to European markets.Stockpiles of gold concentrates amounting to 0.2 Moz gold are already located atsurface and can be a potential source of short-term revenue. The first project to go into production will be the Stratoni deposit. Stratonihas good underground access and a plant capable of producing 650,000 tonnes ROMper year. Previous production reached a maximum of 450,000 tonnes per year atconsistent grades of approximately 8-10% lead, 8-11% zinc and 200 g/t silver.Based on our work on site, we believe that this capacity can be reached or evenexceeded in the future. Current reserves give us a six year life but the depositis open in all directions and there is good potential to expand the resource andreserve base. Prior to gaining the environmental permits, we have been active at Stratoniduring the last six months refurbishing the previous plant infrastructure,submitting all our new mining plans to the Greek government and selling existingsurface stockpiles of lead and zinc concentrates to generate revenue of US$3.4million in the third quarter of 2004. The Olympias deposit is similar to Stratoni in terms of its geology but also hasresource grades of 9.3 g/t gold as well as silver, lead and zinc. Olympias hasgood underground infrastructure which includes ramps and a shaft system down to390 metres below surface, plus a concentrator plant which was capable ofprocessing 400,000 tonnes ROM per year for the sale of lead and zincconcentrates. The deposit is well defined with over 91,000 metres of drillingfor a total gold equivalent resource of over 8.7 Moz which includes 4.3 Mozgold. Traditionally, the mine produced and sold lead and zinc concentrates andstockpiled the arsenopyrite-pyrite gold concentrate. Feasibility studiesconfirmed that good gold recoveries can be achieved by pressure oxidation, whichwould require the building of a gold recovery plant. The opportunity exists togenerate early cash flow revenue from the sale of surface sources, with over 0.2Moz gold present in the form of stockpiles, and 0.2 Moz gold in the form oftailings. Olympias also has good upside with both the East and West deposits open at depthand along strike, and both are linked along the north-south trending Olympiasfault system which extends to the Stratoni deposit and is largely unexplored. The Skouries deposit is a major copper-gold porphyry pipe. The project ismetallurgically simple with 25-30% of the gold recovered by gravity and theremainder of the gold and all the copper recovered by flotation, which producesa concentrate that is readily saleable in European markets. At a US$350/oz goldprice, the reserve exceeds 129 Mt grading 0.9 g/t gold and 0.6% copper. Skouriesis located on a high plateau with no habitation in the immediate vicinity andhas both potential for open pit and subsequent underground exploitation. Thedeposit is well drilled for resource definition but is still open to thesouthwest. In addition to the three main deposits, we consider the prospects andexploration potential on the 317 km2 of mining concessions to be high. We havegood geological models to define where to find further Olympias-Stratoni typemineralisation and where to drill for more porphyry bodies. Previous explorationwork has already outlined the existence of another Olympias-type deposit atPiavitsa and a second porphyry at Fisoka. Furthermore, the licence areas havenot been subject to any modern exploration work such as generative studies andairborne geophysical surveys so we believe the likelihood of further discoveriesto be high. Unlocking value with strong local partnerships We believe that the key to success in developing our mineral assets in Greeceand Romania is establishing strong and viable partnerships with localstakeholders. For example, our acquisition of a controlling interest in HellasGold includes a partnership with Aktor S.A., Greece's largest constructioncompany, which hold the remaining 35% interest in Hellas Gold. Aktor has considerable experience in developing projects in Greece, whichincludes extensive construction for the 2004 Olympic Games and the completion ofother major projects such as the Athens suburban railway and various tunnel,mining and quarry excavations. Aktor has a good track record in Greece incompleting major construction projects, including obtaining required permits. The final step in consolidating our partnership came through the appointment inNovember 2004 of Aktor's President & General Manager, Dimitrios Koutras, asnon-executive Chairman. Dimitrios has a passion for building successful projectsand companies and is well informed on the Hellas Gold assets having completedhis Phd on the Skouries deposit. Our partnership with Aktor and the drive of Dimitrios Koutras have beeninstrumental in the successful negotiation of Hellas Gold's contract with theGreek State. Hellas Gold's contract with the Greek State acknowledges our rightto employ appropriate local persons and does not include historicalenvironmental or social liabilities. We are already close to fulfilling ourfirst commitment which is the re-commencement of mining operations at Stratoni.Furthermore, there are clear timelines for submission of business plans andgranting of permits for the gold and base metal projects of Olympias andSkouries. This contractual transparency coupled with Aktor's understanding ofcommunity needs and their ability to operate in both the EU and Greece is thekey to unlocking the value in our current projects. So much so that we wererecently awarded by the Greek State all necessary environmental permits formining operations at the Stratoni deposit, the first such permits awarded forover six years. Finally, we should not forget our partnership in Romania where our 20% partneris Minvest S.A., a Romanian state-owned mining company. Through the last fouryears, we have benefited from Minvest's support in building our portfolio ofassets, and utilising and developing local skills. Minvest have extensive miningand development skills which we hope to lever into our projects in the future. Breathing new life back into our projects in Romania European Goldfields holds five mineral properties located within the "GoldenQuadrilateral" area of Romania, a gold province which historically is estimatedto have produced over 40 Moz. We recently embarked on a resource development andpre-feasibility programme to underpin the value of our 80%-owned Certej depositand surrounding satellite bodies. This work has culminated in a new estimate forCertej which outlined measured and indicated resources of 31.4 Mt grading 2.1 g/t gold and 11 g/t silver for 2.3 Moz of gold equivalent (80% attributable = 1.9Moz). This estimate is based on a new geological model and includes a 11.4 Mthigh grade core to the deposit grading 3.4 g/t at a 2 g/t gold cut-off. Thiswork has underpinned the fact that Certej can be mined more selectively tooptimise an open pit. An in-house pre-feasibility study is now in progress withspecific focus on generating a higher grade metallurgical concentrate, assessingthe contribution from satellite bodies and defining and sizing appropriatemining, plant and tailings infrastructure. In January 2005, we were awarded an additional exploration licence referred toas Cainel which covers an area of 31.3 km(2) and is located contiguous with ourCertej property. The Cainel deposit includes vein-hosted epithermal, stockworkand disseminated mineralisation with workings occurring over an area of some1,000 metres by 250 metres. Historic mining was restricted to below 200 metresdepth from surface and grab sampling by European Goldfields has indicated thatthe mineralisation extends to surface. Exploration work continues to define themineralised system with a view to either defining a stand-alone project or asatellite for Certej. Solid financial foundations In 2004, we raised over US$120 million by the issue of 49 million common sharesat an average price of £1.30 (C$3.05) per share. European Goldfields and HellasGold had over US$65 million in cash at year end. With this cash balance and amarket capitalisation which now stands in excess of US$215 million (havingincreased fivefold during 2004), we have established solid financial foundationsfor the future growth of our business. In March 2004, our common shares commenced trading on the AIM Market of theLondon Stock Exchange, followed by a graduation to the Toronto Stock Exchange(TSX) from the TSX Venture Exchange in March 2005. The listings and fund raisings have strengthened our shareholder base andendorsed our growth strategy and the inherent underlying value in the company. With the current cash balance and expected revenue from Stratoni miningoperations and sale of Olympias concentrates, we expect to be self-funded to theend of 2006 and beyond, covering all corporate and exploration activities inRomania, as well as the permitting and updated feasibility studies associatedwith our major gold and base metal projects in Greece. A unique opportunity We believe our company represents a unique mining and exploration opportunity inEurope with over 16.1 Moz of measured and indicated resources and 11.1 Moz ofproven and probable reserves on a gold equivalent and attributable basis.Production is about to commence at Stratoni where we have major mining and portinfrastructure, and we believe we have good exploration upside in both Greeceand Romania. Our attractive mix of viable gold and base metal projects distinguishes us fromour peers in an industry where there is a lack of new quality projects emergingdespite the strong demand for metal production. We are about to enter intoproduction within a market environment where demand for both zinc and gold isnot able to be matched by the available supply. This environment is furthersupported by a strong platform of price sustainability in lead, copper andsilver. We believe that global metal markets are at the beginning of a strongupward cycle which, according to expert opinion, could be sustainable for over adecade. Our attractiveness is also attested to by our blend of local and internationalmanagement coupled with strong partnerships and a European approach to problemsolving, company building and environmental issues. We believe we represent thestart of a new dawn for European mining which will be tackled by partnershipsinvolving national stakeholders and the support of local communities andinstitutions. In summary, we represent a development company with extensive assets andproduction capacity which currently sits at the base of the value curve. Ourstory is not, as yet, well known. Through the achievement of our milestones in2005 we hope to redress this imbalance and move European Goldfields into thetier of producing companies. Stratoni environmental permits granted - production expected to commence shortly In April 2005, we announced that Hellas Gold had been awarded by the Greek Stateall environmental permits for mining operations at the Stratoni deposit. We haveworked closely with the Greek government and local community to gain thesepermits and this represents a major milestone in the development of EuropeanGoldfields' strategy. Final approval to commence mining operations is expectedshortly, to be followed by production launch. The permits provide for a new mining method involving completion of a 1,900metre access tunnel (or adit) and thereafter more efficient and mechanised cutand fill operations designed to excavate from the base of the reserve upwardswith fill being placed on the floor. Previous mining at Stratoni was inefficientwith backfill often affected in the hangwall and gravity was not utilised toremove ore blocks. Construction on the new adit is expected to begin shortly to provide improvedaccess to the Stratoni reserve and allow full scale mining operations to beeffected by the end of Q2 2006. In the meantime, we have cleaned out all the oldaccess ways and will commence mining from existing infrastructure immediatelyafter we have need awarded the mining permit. Production of ore is expected to reach 170,000 tonnes by the end of the firstyear of full scale production and increase steadily thereafter. Stratoni is a high grade base metal project with a six year life based oncurrent reserves, and there is strong market demand for the lead plus silver andzinc concentrates which are produced. In addition to the expected commencement of production at Stratoni, we will alsobe initiating aggressive exploration programmes with the objective of extendingthe life of mine. The new adit will provide access from the old, mined out,Madem Lakkos deposit to the new Mavres Petres deposit and will be located withinthe hanging wall to and adjacent to the Stratoni fault. This area between thetwo deposits remains largely unexplored and there is a good chance of findingadditional resources. Drilling is planned to test this target area and existingextensions to the current deposit in order to extend the current life of mine. Outlook - obtaining the gold permits and pursuing new opportunities We are currently updating the feasibility studies and preparing new business andenvironmental plans defining the way forward for Hellas Gold's multi-millionounce gold and base metal projects of Olympias and Skouries. Preliminary work onOlympias demonstrates that this is a robust project with strong returns at arealistic gold price of US$375/oz. The Olympias project is also enhanced by thediscovery that we can segregate the arsenopyrite from pyrite which shouldprovide for greater flexibility with regard to processing options. In the case of Skouries, the project economics appear to be positive for acombined open pit and underground operation with the higher grade zones addingto mining flexibility. In Q1 2006, we intend to submit our new business plans to the Greek governmentto facilitate the granting of all relevant environmental, mining and developmentpermits. In Greece, we will also continue to look for new discoveries through focusedexploration programmes. We have a good exploration model defining where we mustlook for further Olympias and Skouries targets and we will be actively testingthese opportunities this year. In Romania, work at Certej is now directed towards completing an in-housepre-feasibility study with specific focus on optimising metallurgical recoveriesand defining a practical open pit. We also continue to look at new satellitetargets around the Certej deposit with a view to adding additional incrementalounces. At Cainel, underground channel sampling continues to define the biggermineralised target covering an area of 200 x 1,000 metres. Aggressive drillingcampaigns will be effected during the second half of 2005 to test our geologicalmodel and the potential for a major mineralised system. A major driving force for European Goldfields in the current year is to achieveour mission statement of "Resource development, gold and base metal productionin South East Europe through effective national stakeholder partnerships". Thispath is expected to commence with Stratoni production and continue with thedevelopment of our major gold and base metal projects in Greece and our Romanianassets. We also intend to continue growing our portfolio by new explorationdiscoveries and the pursuit of accretive, value enhancing acquisitions in Europeand the Balkans. For further information please contact: European Goldfields:David Reading, Chief Executive OfficerDavid Grannell, Chief Financial Officer Office: +44 (0)20 7408 9534 website: www.egoldfields.comMobile: +44 (0)7703 190 652 e-mail: [email protected] Buchanan Communications:Bobby Morse / Ben Willey e-mail: [email protected]: +44 (0)20 7466 5000Mobile: +44 (0)7802 875 227 Reserve and resource parameters Reserves and resources are classified in accordance with the Canadian Instituteof Mining Metallurgy and Petroleum's "CIM Standards on Mineral Resources andReserves, Definitions and Guidelines" as per the requirements of CanadianSecurities Administrator's National Instrument 43-101 (the "Instrument"). Disclosure of mineral resources and reserves for Hellas Gold's Olympias,Stratoni and Skouries deposits is derived from a prefeasibility study preparedby independent consultants Behre Dolbear & Company, Inc. in accordance with theguidelines set out in the Instrument and under the supervision of RichardParker, a "qualified person" under the Instrument. The prefeasibility study wasfiled on SEDAR at www.sedar.com on 29 October 2004 under the category "TechnicalReport". Disclosure of mineral resources for European Goldfield's 80%-owned Certejdeposit is derived from a resource estimation prepared by independentconsultants RSG Global Pty Ltd in accordance with the guidelines set out in theInstrument and under the supervision of Brett Gossage, a "qualified person"under the Instrument. The resource estimation was filed on SEDAR on 23 March2005 under the category "Technical Report". Gold equivalent ounces were calculated using the following metal prices,representing the average of (i) the average metal prices from 1993 to 2003(source: LME), and (ii) the average metal prices from 1 January to 30 June 2004(source: LME): Au: US$369/oz; Ag: US$5.79/oz; Pb: US$0.31/lb; Zn: US$0.47/lb;Cu: US$1.09/lb. Mining recoveries for reserves have been taken into account.However, metallurgical and refinery costs have not been considered whencalculating the gold equivalents. Reserves are estimated using projected process recoveries, operating costs andmine plans that are unique to each property and include estimated allowances fordilution and mining recovery. Normal data verification procedures have been used in collecting, compiling,interpreting and processing the data used to estimate resources and reserves.Data verification includes quality assurance and quality control procedures putin place by European Goldfields in Romania and by the previous owners of theHellas Gold assets in Greece, and reviews by independent consultants of drillhole information on geological sections prepared by European Goldfields and suchprevious owners. Resources (unlike reserves) do not have demonstrated economic viability. Development of all properties is dependent on successful permitting. Patrick Forward, General Manager, Exploration of European Goldfields, was the"qualified person" under the Instrument responsible for reviewing the disclosureof resource and reserve estimates quoted above. Forward-looking statements This news release contains certain forward-looking statements concerning theCompany's future operations, economic performances, financial condition andfinancing plans. These statements are based on certain assumptions and analysesmade by the Company in light of the its experience and its perception ofhistorical trends, current conditions and expected future developments as wellas other factors the Company believes are appropriate in the circumstances.However, whether actual results and developments will conform to the Company'sexpectations and predictions is subject to a number of risks, uncertainties andassumptions. Consequently, all of the forward-looking statements made in thisnews release are qualified by these cautionary statements, and there can be noassurance that the results or developments anticipated by the Company will berealised or, even if substantially realised, that they will have the expectedconsequences to or effects on the Company and its subsidiaries or theirbusinesses or operations. The Company undertakes no obligation and do not intendto update or revise any forward-looking statements, whether as a result of newinformation, future events or otherwise, except as may be required underapplicable law. MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED 31 DECEMBER 2004 The following discussion and analysis, prepared as at 27 April 2005, is intendedto assist in the understanding and assessment of the trends and significantchanges in the results of operations and financial conditions of EuropeanGoldfields Limited (the "Company"). Historical results may not indicate futureperformance. Forward-looking statements are subject to a variety of factors thatcould cause actual results to differ materially from those contemplated by thesestatements. The following discussion and analysis should be read in conjunctionwith the Company's audited consolidated financial statements for the years ended31 December 2004 and 2003 and accompanying notes (the "Consolidated FinancialStatements"). Additional information relating to the Company is available on the CanadianSystem for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com.Except as otherwise noted, all dollar amounts in the following discussion andanalysis and the Consolidated Financial Statements are stated in United Statesdollars. Overview The Company, a company incorporated in the Yukon, Canada, is a resource companyinvolved in the acquisition, exploration and development of mineral propertiesin Greece, Romania and the Balkans. The Company's Common Shares are listed on the AIM Market of the London StockExchange and on the Toronto Stock Exchange (TSX) under the symbol "EGU". Greece - As at 31 December 2004, the Company held a 65% interest (on afully-diluted basis) in Hellas Gold S.A ("Hellas Gold"). Hellas Gold owns assetsin Northern Greece which include 70-year mining concessions over a total area of317 km2 and three polymetallic near-production deposits, known as Olympias,Stratoni and Skouries, which contain proven and probable reserves. The Stratoniand Olympias deposits were previously in production and benefit from significantinfrastructure which includes underground mining development, two plants and aship loading facility on the Aegean Sea. Hellas Gold's assets also includepotential revenue generating stockpiles and tailings located on the surface. Romania - In Romania, the Company holds a 80% interest in Deva Gold S.A. and a100% interest in European Goldfields (Romania) SRL, which are in the process ofexploring their mineral properties in Romania and have not yet determinedwhether those properties contain economic reserves. Balkans - The Company is currently entertaining certain investments forexploration and development of mineral properties in the Balkans. Significant acquisition in 2004 In February 2004, the Company acquired an initial 37.97% interest (30% on afully-diluted basis) in Hellas Gold for a total subscription price of €18million ($24.06 million) in cash. In November 2004, the Company completed the acquisition of additional shares inHellas Gold (the "Purchased Shares"), increasing its total interest from 37.97%to 55.70%, and assumed an obligation to subscribe to additional shares in HellasGold for a subscription price of $23.48 million (the "Subscription Obligation"),resulting in an interest of 65% on a fully-diluted basis (the "Acquisition").The total price paid by the Company for the Purchased Shares and for theassumption of the Subscription Obligation was $125.35 million, satisfied asfollows: a) $77.43 million by the issue in November 2004 of 30,423,280 common sharesto the vendors at a deemed issue price of £1.75 (C$3.98) per share. This wasaccounted for at a price per share of £1.38 (C$3.14), representing the then fairmarket value of such shares; and b) $47.92 million paid in cash to the vendors in December 2004. Transaction costs of $3.99 million were also accounted for as part of theAcquisition. In January 2005, the Company satisfied the Subscription Obligation for asubscription price of US$23.48 million. To fund the cash requirements relating to the Acquisition and provide additionalworking capital, the Company raised concurrently £40 million ($75.73 million)(before expenses) by the issue of 29,629,630 common shares at a price of £1.35(C$3.07) per share (the "Placing"). The balance of the cash considerationrequired for the Acquisition was funded by a non-brokered private placement withCommerzbank A.G. completed in May 2004, where 5,882,000 common shares at a priceof £1.70 (C$4.18) per share were issued, for total subscription proceeds of £10million ($17.76 million). The Acquisition was accounted for as a purchase and the results of operations ofHellas Gold were included in the consolidated statements of loss and deficitfrom 30 November 2004, the effective date of the Acquisition. From 6 February2004 to 30 November 2004, the Company's initial 37.97% interest (30% on afully-diluted basis) in Hellas Gold was accounted for as an equity investmentand the Company's share of loss in Hellas Gold was included in the consolidatedstatements of loss and deficit. Results of operations The Company's results of operations for the three-month period and year ended 31December 2004 were comprised primarily of activities related to the Company'sregional exploration programs in Romania. The Company continues to incur lossesand until commercial production commences and revenues are generated, theCompany will continue to do so. The Company's results of operations for the eight most recently completedquarters are summarised in the following table: ------------------------------------------------------------------------------------------------------------------------ 2004 2004 2004 2004 2003 2003 2003 2003 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 $ $ $ $ $ $ $ $------------------------------------------------------------------------------------------------------------------------Statement of lossand deficitInterest Income 279,277 142,507 60,340 18,079 27,649 16,255 68,512 57,234Expenses 5,510,145 1,735,977 43,712 4,664,828 1,172,229 2,325 1,619 1,620(non-cash)Expenses (total) 9,224,437 2,853,951 1,324,467 6,566,420 1,714,515 293,089 351,847 267,208Loss 8,133,661 2,189,958 2,055,739 6,803,280 1,686,866 276,834 283,335 209,974Loss (beforenon-cash expenses) 2,623,516 453,981 2,012,027 2,138,452 514,637 274,509 281,716 208,354Loss per share 0.17 0.05 0.05 0.24 0.08 0.01 0.01 0.01Loss per share(beforenon-cashexpenses) 0.05 0.01 0.05 0.07 0.03 0.01 0.01 0.01Balance sheetWorking capital 63,479,383 29,045,152 31,117,158 14,412,628 5,057,885 5,433,159 6,709,136 7,667,515Total assets 304,758,330 86,879,327 83,516,659 67,875,357 45,943,009 29,929,347 29,784,760 28,455,250Non current 71,319,883 - - - - - - -liabilitiesStatement of cash flows ------------------------------------------------------------------------------------------------------------------------Deferredexplorationand developmentcosts 2,462,164 1,171,323 943,157 1,393,927 1,097,467 1,087,776 1,133,743 938,016------------------------------------------------------------------------------------------------------------------------The following tables and discussion compare the results of operations for theyears ended 31 December 2004, 2003 and 2002, and the three-month periods ended31 December 2004 and 2003. Years ended 31 December Three-month periods ended 31 December -------------------------------------------------------------- 2004 2003 2002 2004 2003 $ $ $ $ $------------------------------------------------------------------------------------Statement of lossand deficitInterest Income 500,203 169,650 198,423 279,277 27,649Expenses (non-cash) 11,954,662 1,177,793 2,654 5,510,145 1,172,229Expenses (total) 19,969,275 2,626,659 1,341,371 9,224,437 1,714,515Loss 19,182,638 2,457,009 1,145,602 8,133,661 1,686,866Loss (beforenon-cashexpenses) 7,227,976 1,279,216 1,142,948 2,623,516 514,638Loss per share 0.39 0.11 0.06 0.17 0.08Loss per share(beforenon-cash expenses) 0.15 0.06 0.06 0.05 0.03Balance sheetWorking capital 63,479,383 5,057,885 8,176,685 63,479,383 5,057,885Total assets 304,758,330 45,943,009 26,481,551 304,758,330 45,943,009Non current 71,319,883 - - 71,319,883 -liabilitiesStatement of cashflowsDeferredexploration anddevelopment costs 5,970,571 4,257,002 5,678,950 2,462,164 1,097,467------------------------------------------------------------------------------------Loss before non-cash expenses and loss per share before non-cash expensesrepresent the loss before any expenses which are not deemed to be cash expenses.They are not a generally accepted accounting principle measures. Loss beforenon-cash expenses and loss per share before non-cash expenses may not becomparable to similar measures used by other companies and as a result they arenot reflected in the key financial statements. The breakdown of deferred exploration and development costs per explorationconcessions for the years ended 31 December 2004, 2003 and 2002, and thethree-month periods ended 31 December 2004 and 2003 is as follows: Years ended 31 December Three-month periods ended 31 December ----------------------------------------------------------- 2004 2003 2002 2004 2003 $ (%) $ (%) $ (%) $ (%) $ (%)----------------------------------------------------------------------------------Romanian mineralpropertiesCertej 4,516,016 2,250,518 2,305,600 1,798,904 877,974 (76%) (53%) (41%) (73%) (80%)Zlatna 529,930 985,379 1,753,058 266,183 131,696 (9%) (23%) (30%) (11%) (12%)Voia 181,740 157,532 88,758 73,646 43,899 (3%) (4%) (2%) (3%) (4%)Baita-Craciunesti 552,715 721,112 164,887 156,963 32,924 (9%) (17%) (3%) (6%) (3%)Bolcana 190,170 142,461 1,366,647 166,468 10,974 (3%) (3%) (24%) (7%) (1%)---------------------------------------------------------------------------------- 5,970,571 4,257,002 5,678,950 2,462,164 1,097,467 (100%) (100%) (100%) (100%) (100%)----------------------------------------------------------------------------------Greek mineralpropertiesStratoni 11,375,542 - - 11,375,542 - (6%) (6%)Skouries 110,914,467 - - 110,914,467 - (57%) (57%)Olympias 73,517,372 - - 73,517,372 - (37%) (37%)---------------------------------------------------------------------------------- 195,807,381 - - 195,807,381 - (100%) (100%)----------------------------------------------------------------------------------Total 201,777,952 4,257,002 5,678,950 198,269,545 1,097,467----------------------------------------------------------------------------------The Company incurred a loss for the year ended 31 December 2004 of $19,182,638($0.39 per share), and of $8,133,661 ($0.17 per share) for the three-monthperiod ended 31 December 2004, compared to $2,457,009 ($0.11 per share) and$1,686,866 ($0.08 per share), respectively, for the same periods of 2003. Before non-cash expenses, the Company incurred a loss for the year ended 31December 2004 of $7,227,976 ($0.15 per share), and of $2,623,516 ($0.05 pershare) for the three-month period ended 31 December 2004, compared to $1,279,216($0.06 per share) and $514,637 ($0.03 per share), respectively, for the sameperiods of 2003. Generally, this increase in loss can be explained by a significant increase inthe Company's investment and exploration activities in 2004 in both Romania andthe Company's newly acquired subsidiary in Greece, compared to 2003, as well asby the hiring of new management and technical staff in 2004. In essence, thisamounted to a transformation of the Company in 2004. In particular, the following factors have contributed to the increase in loss(before non-cash expenses) for the three-month period and year ended 31 December2004, compared to the same periods of 2003: • In 2004, the Company initiated and completed significant investment activities in Greece and financing at the corporate level, which resulted in the listing of the Company's shares on the AIM Market of the London Stock Exchange, the acquisition of a 65% interest in Hellas Gold and year-end cash balances of $65,252,532 million. To achieve these milestones, new management and technical staff were hired. The Company also accelerated exploration activities in Romania. As a result, the Company's administrative and overhead expenses increased to $1,861,667 for the three-month period ended 31 December 2004, and to $3,939,829 for the year ended 31 December 2004, compared to $207,844 and $559,357, respectively, for the same periods of 2003. • In 2004, the Company's audit, accounting, legal and other professional fees amounted to $80,021 for the three-month period ended 31 December 2004, and to $1,291,362 for the year ended 31 December 2004, compared to $307,907 and $836,584, respectively, for the same periods of 2003. This increase for the year is mainly due to the increase in the Company's activities mentioned above. • In March 2004, the Company completed the listing of the its common shares on the AIM Market of the London Stock Exchange for which the Company recorded an expense of $4,152 for the three-month period ended 31 December 2004, and of $559,733 for the year ended 31 December 2004, compared to $Nil for the same periods of 2003. • The Company recorded an expense of $Nil for the three-month period ended 31 December 2004, and of $455,236 for the year ended 31 December 2004, compared to $Nil and $151,511, respectively, for the same periods of 2003, with respect to the evaluation of new projects. • The Company recorded a foreign exchange gain of $1,268,408 for the three-month period ended 31 December 2004, and of $510,235 for the year ended 31 December 2004, compared to a gain of $130,581 and $114,574, respectively, for the same periods of 2003. Effective 1 October 2004, the Company changed its functional currency from the Canadian dollar to the United States dollar. The gain was mainly due to the weakening of the United States dollar against the British pound sterling and the euro over the year ended 31 December 2004. The majority of the Company's funds were held in euros and United States dollars. • In November 2004, the Company completed the acquisition of shares in Hellas Gold, increasing its total interest from 37.97% to 55.70%, and assumed an obligation to subscribe to additional shares in Hellas Gold, resulting in an interest of 65% on a fully-diluted basis. The Acquisition was accounted for as a purchase and the results of operations of Hellas Gold were included in the consolidated statements of loss and deficit from 30 November 2004, the effective date of the Acquisition. Hellas Gold's net operating, general and administrative expenses of $1,768,453 for the period 30 November 2004 to 31 December 2004 was incorporated in the Company's consolidated statement of loss and deficit. • The following non-cash expenses have also contributed to the increase in loss for the three-month period and year ended 31 December 2004, compared to the same periods of 2003: • In December 2003, the Company raised $15,089,594 (C$19,528,400) by way of a brokered private placement of convertible loan notes, for which the Company recorded a non-cash expense for financing costs of $Nil for the three-month period ended 31 December 2004, and of $1,121,681 for the year ended 31 December 2004, compared to $177,738 for the same periods of 2003. • In January 2005, the Company decided to relinquish its 80%-owned exploitation licence for the Zlatna perimeter in Romania and a provision of $4,806,048 for the costs relating to the impairment of this property was recorded for the three-month period and year ended 31 December 2004, compared to $Nil for the same periods of 2003. • During the year ended 31 December 2004, the Company issued the following number of common shares to senior officers under the Company's Milestone Share Compensation Plan: 700,000 in July 2004 and 405,000 in November 2004. As a result, the Company recorded an additional non-cash stock-based compensation expense of $1,048,835 for the three-month period ended 31 December 2004, and of $2,527,006 for the year ended 31 December 2004, compared to $Nil for the same periods of 2003. Milestones for which common shares were issued in the year ended 31 December 2004 include (i) the listing in March 2004 of the Company's common shares on the AIM Market of the London Stock Exchange, (ii) the acquisition in February 2004 of an initial 30% interest in Hellas Gold and related financing, and (iii) the acquisition in November 2004 of an additional 35% interest in Hellas Gold and related financing. • As a result of the introduction of new accounting standards, the Company recorded a non-cash stock-based compensation expense of $828,111 for the three-month period ended 31 December 2004, and of $3,893,179 for the year ended 31 December 2004, compared to $992,451 for the same periods of 2003. Such increase is consistent with the increase in the number of options granted in the three-month period and year ended 31 December 2004, compared to the same periods of 2003. Option grants in 2004 were made mostly to new management and technical staff hired in the context of the Company's initiatives to grow the business in Greece and accelerate exploration activities in Romania. In February 2004, the Company acquired an initial 37.97% interest (30% on afully-diluted basis) in Hellas Gold. From 9 February 2004 to 30 November 2004,the Company's interest in Hellas Gold was accounted for as an equity investmentand the Company's share of loss in Hellas Gold was included in the consolidatedstatements of loss and deficit. The Company's share of the loss in Hellas Goldwas a loss of $254,856 for the three-month period ended 31 December 2004, and aloss of $729,579 for the year ended 31 December 2004, compared to $Nil for thesame periods of 2003. Hellas Gold's loss for the period from 9 February 2004 to30 November 2004 includes revenue from the sale of surface concentrates of $Nilfor the three-month period ended 31 December 2004, and of $3,118,404 for theyear ended 31 December 2004, compared to $Nil for the same periods of 2003. The Company recorded a credit for income taxes of $531,659 for the three-monthperiod ended 31 December 2004, and of $481,318 for the year ended 31 December2004, compared to $Nil and $15,989, respectively, for the same periods of 2003.The credit has arisen mainly due to the Company recognising a future tax assetfor the losses carried forward in Hellas Gold. Liquidity and capital resources As at 31 December 2004, the Company had cash and cash equivalents and short terminvestments of $65.25 million, compared to $18.10 million as at 31 December 2003, and working capital of $63.48 million, compared to $5.06 million as at 31December 2003. The increase in cash and cash equivalents and working capital as at 31 December2004, compared to the balances as at 31 December 2003, resulted from threeprivate placements described below ($111.57 million), the exercise of warrantsand options during the year ended 31 December 2004 ($9.36 million) and $0.5million in interest earned, partly offset by capital raising costs ($4.60million), the payment of the cash portion of the acquisition price for a 65%interest in Hellas Gold ($61.71 million), operating losses ($6.20 million) anddeferred exploration and development costs ($5.97 million) discussed herein. In February 2004, the Company raised $18.08 million by way of a non-brokeredprivate placement of 9,458,750 special warrants at a price of C$2.50 perwarrant. The warrants were exercised in February 2004 into 9,458,750 commonshares of the Company. In May 2004, the Company completed a non-brokered private placement withCommerzbank A.G. of 5,882,000 common shares at a price of £1.70 (C$4.18) pershare for total subscription proceeds of £10 million ($17.76 million). In November 2004, the Company raised $75.73 million by way of a brokered privateplacement of 29,629,630 common shares at a price of £1.35 (C$3.07) per share. During the year ended 31 December 2004, the Company received total proceeds of$7,428,171 through the exercise of 3,918,970 common share warrants at a price ofC$2.50 per share, and $1,935,581 through the exercise of 1,350,000 common shareoptions at a weighted average price of C$1.80 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 -----------------------------------------------------------------------------Contractual Total Less 1 - 3 4 - 5 After 5obligations than years years years 1 year -----------------------------------------------------------------------------Operating lease(London office) 1,120,110 186,685 373,370 373,370 186,685Explorationlicencespendingcommitments (Voia,Romania) 1,516,900 - 1,516,900 - ------------------------------------------------------------------------------Total contractualobligations 2,637,010 186,685 1,890,270 373,370 186,685----------------------------------------------------------------------------- For the coming year, the Company believes it has adequate funds available tomeet its corporate and administrative obligations (estimated at $3,861,794) andits planned expenditures on its mineral properties (estimated at $6,281,876 forRomania and at $13,277,113 for Greece). Transactions with related parties As part of the Acquisition described above, the Company acquired from companiesowned by Frank Timis or over which he exercised control or direction, anobligation to subscribe for a 21% interest (on a fully-diluted basis) in HellasGold for an aggregate subscription price $23.48 million (€18 million). Prior tothe Acquisition, Frank Timis owned, or exercised control or direction over,approximately 9% of the issued and outstanding common shares of the Company.After completion of the Acquisition and the Placing described above, Frank Timisowned, or exercised control or direction over, approximately 18.9% of the issuedand outstanding common shares of the Company. As part of the Acquisition, the Company acquired a 14% (on a fully-dilutedbasis) in Hellas Gold from Dimitrios Koutras. Prior to the Acquisition,Dimitrios Koutras owned, or exercised control or direction over, Nil% of theissued and outstanding common shares of the Company. After completion of theAcquisition and the Placing, Dimitrios Koutras owned, or exercised control ordirection over, approximately 12.7% of the issued and outstanding common sharesof the Company. The Acquisition was approved by the disinterested shareholders of the Company ata Special Meeting of Shareholders held on 26 November 2004, and was completedfollowing the rules of the TSX Venture Exchange and the AIM Market of the LondonStock Exchange. During the financial year ended 31 December 2004, Hellas Gold recorded expensesof $3,644,605 (2003 - Nil) for management, technical and engineering servicesreceived from a related party, Aktor S.A. As at 31 December 2004, Hellas Goldhad accounts payable of $1,366,095 (2003 - Nil) to Aktor S.A. These expenseswere contracted in the normal course of operations and are recorded at theexchange amount agreed by the parties. 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. Significant accounting policies In this document, unless otherwise indicated, all financial data and discussionis based upon consolidated financial statements prepared on the going concernbasis in accordance with Canadian GAAP and reflect the following significantaccountant policies. Basis of consolidation - Business acquisitions are accounted for under thepurchase method and the results of operations of these businesses are includedin these consolidated financial statements from the acquisition date.Investments in affiliated companies over which the Company has significantinfluence are accounted for using the equity method. Investments in otherbusinesses are recorded at cost. Estimates, risks and uncertainties - The preparation of financial statements inconformity with generally accepted accounting principles requires management tomake estimates and assumptions that affect the reported amount of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amount of revenues and expenses duringthe period. Significant estimates and assumptions include those related to therecoverability of mineral properties and deferred exploration and developmentcosts. While management believes that these estimates and assumptions arereasonable, actual results could vary significantly. Mineral properties and deferred exploration and development costs - Acquisitioncosts of resource properties, together with direct exploration and developmentcosts incurred thereon, are deferred and capitalised. Upon reaching commercialproduction, these capitalised costs are transferred from exploration propertiesto producing properties on the consolidated balance sheets and are amortisedinto operations using the unit-of-production method over the estimated usefullife of the estimated related ore reserves. Based on annual impairment reviews made by management, in the event that thelong-term expectation is that the net carrying amount of these capitalisedexploration and development costs will not be recovered such as would beindicated where: - Producing properties: • the carrying amounts of the capitalised costs exceed the related undiscounted net cash flows of reserves; - Exploration properties: • exploration activities have ceased; • exploration results are not promising such that exploration will not be planned for the foreseeable future; • lease ownership rights expire; or • insufficient funding is available to complete the exploration program; then the carrying amount is written down accordingly and the write-down amountcharged to operations. Foreign currency translation - The Company's functional currency is the UnitedStates dollar. Monetary assets and liabilities denominated in foreign currenciesare translated at the exchange rate in effect at the balance sheet date.Non-monetary assets and liabilities and revenue and expenses arising fromforeign currency transactions are translated at the exchange rate in effect atthe date of the transaction. Exchange gains or losses arising from thetranslation are included in operations. Integrated foreign subsidiaries are accounted for under the temporal method.Under this method, monetary assets and liabilities are translated at theexchange rate in effect at the balance sheet date. Non-monetary assets andliabilities are translated at historical rates. Revenue and expenses aretranslated at average rates for the period. Exchange gains or losses arisingfrom the translation are included in operations except for those related tomineral properties which are capitalised. Financial instruments - The Company's financial instruments consist of cash andcash equivalents, accounts receivable and accounts payable and accruedliabilities. Unless otherwise noted, it is management's opinion that the Companyis not exposed to significant interest or credit risks arising from thesefinancial instruments. The fair values of these financial instrumentsapproximate their carrying values unless otherwise noted. The Company's operations expose it to significant fluctuations in foreignexchange rates. The Company has monetary assets and liabilities denominated inBritish pounds sterling, Romanian lei, euros and Canadian dollars, which are,therefore, subject to exchange variations against the reporting currency, theUnited States dollar. Included in cash and cash equivalents is approximately $38million denominated in euros. The Company does not currently have any hedging policies or practices in place. Share options - The Company operates a share option plan. Effective 1 January2003, the Company chose to adopt the accounting standard of the CanadianInstitute of Chartered Accountants with respect to the accounting forstock-based compensation and adopted the fair value method of accounting forshare options granted to directors, officers and employees on a prospectivebasis whereby the weighted average fair value of options granted is recorded asa compensation expense in the financial statements. Compensation expense onshare options granted to non-employees is recorded as an expense at the earlierof the date the options are vested or the performance is complete, using theRelated Shares:
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