Half Yearly Financial Statements

27 September 2017

Patagonia Gold Plc

("Patagonia" or the "Company")

Half Yearly Financial Statements

for the six months ended 30 June 2017

Patagonia Gold Plc (AIM:PGD), the mining company with gold and silver projects in the southern Patagonia region of Argentina, Chile and Uruguay, is pleased to announce its unaudited interim results for the six months ended 30 June 2017. The Company will host a webcast and presentation on the interim results today at 2.00 p.m. UK time (see below for details).

Financial Highlights

· Gross revenues of US$12.8 million for H1 2017 (H1 2016: US$21.6 million) on sales of 10,452 oz AuEq at a price of US$1,233.13/oz. This lower figure is a result of delays associated with the technical difficulties at Cap-Oeste which impacted production.

· Net profit attributable to the Company of US$9.1 million (H12016: US$2.2 million) mainly as a result of the disposal of Cap-Oeste Sur Este (COSE).

Operating Highlights 

· Total production during the first half amounted to 10,452 oz AuEq (H1 2016: 16,889 oz AuEq). The reasons for this reduced figure are twofold: the transition of mining away from Lomada to Cap-Oeste and secondly, the technical difficulties initially encountered due to the high clay content in the ore at Cap-Oeste and the consequent delays while the agglomeration circuit was installed to address this problem.

· Lower recoveries associated with the technical difficulties contributed to higher than forecast operating costs. It is estimated that recoveries will improve by 15% to 80% as a result of installing the agglomeration circuit.

· Lomada: Although mining ceased at Lomada in May 2016, production from the leach pads continues with performance during the first half 77% above plan at 3,809 oz Au. Gold production will continue while recoveries remain viable and this is likely until at least the end of the current year.

· Cap-Oeste:

- Construction of the agglomeration circuit is complete with commissioning having started in July. It is estimated that recoveries will improve to 80% as a result of installing this circuit.

- 455,000 tonnes of ore at 1.65g/t Au and 52g/t Ag were extracted up to the end of July 2017, 5% below forecast owing to adverse weather conditions.

- The Company estimates that approximately 75,000 tonnes of agglomerated ore will be loaded on the pads up until the end of September 2017 after which more accurate guidance for both production and operating costs will be provided.

- Forecast completion date for the first pit shell remains on schedule for December 2017.

· La Manchuria: JV options are being evaluated to realise cash flow and advance exploration.

· Sarita: A 23.6km line of IP geophysics has been completed with several high priority targets identified and drill ready for testing before year end.

· Exploration: Exploration work comprising mainly mapping, sampling and geophysical surveys continues across the Company's property portfolio both in Argentina and Uruguay.

Corporate Highlights

· Disposal of COSE to a subsidiary of Pan American Silver Corp. (PAAS) at the end of May 2017 for a total consideration of US$15 million, of which half has been paid, with the remainder being deferred to 24 April 2018, plus a 1.5% net smelter return royalty.

· In April 2017, the Company entered into an exclusive option agreement with a subsidiary of PAAS to acquire the Calcatreu gold asset in Rio Negro ("Calcatreu Option"). This six month option is exercisable at the discretion of Patagonia Gold before 24 October 2017. Due diligence is under way and will be completed within the six month option period.

Christopher van Tienhoven, CEO commented: "Despite the technical challenges we have experienced at Cap-Oeste which are now behind us, the Company has continued to perform in a prudent and efficient manner. Given improved gold prices, more favourable exchange rates and our ongoing commitment to reduce costs wherever possible, we are confident that the setbacks of the last few months have been successfully overcome and that the outlook for the second half is significantly more robust".

The unaudited interims report for the six months ended 30 June 2017 will shortly be available on the Company's website at www.patagoniagold.com.

Webcast Details

The presentation will be made available on the Company's website (www.patagoniagold.com) immediately prior to the webcast.

DATE: Wednesday, 27 September 2017

TIME: 14.00 BST

WEBCAST: http://webcasting.brrmedia.co.uk/broadcast/59bfaa7d6e25824f45f17a6d

A recording of the webcast will subsequently be made available on the Company's website - www.patagoniagold.com.

About Patagonia Gold

Patagonia Gold Plc is a mining company that seeks to grow shareholder value through exploration, development and production of gold and silver projects in the southern Patagonia region of Argentina. The Company is primarily focused on three projects: the flagship Cap-Oeste project, the La Manchuria project and the Lomada heap leach project. Patagonia Gold, indirectly through its subsidiaries or under option agreements, has mineral rights to over 220 properties in several provinces of Argentina, Chile and Uruguay and is one of the largest landholders in the province of Santa Cruz.

For more information, please contact:

Christopher van Tienhoven, Chief Executive Officer

Patagonia Gold Plc

Tel: +54 11 5278 6950

Angela Hallett

Strand Hanson Limited (Nominated Adviser and Broker)

Tel: +44 (0)20 7409 3494

This announcement contains inside information.

patagonia gold plc

Unaudited Condensed Consolidated Interim Financial Statements

(Expressed in U.S. dollars)

For the six months ended June 30, 2017

(Unaudited)

CEO's introduction

I am pleased to present Patagonia Gold Plc's ("Patagonia" or the "Company") unaudited interim report for the six months ended 30 June 2017.

A higher than projected gold price and a more competitive exchange rate, together with our ongoing cost reduction efforts have had a positive effect on the Company.

Revenues for the first six months of the year amounted to US$12.8 million (1H2016: US$21.6 million), below forecast owing mainly to lower initial production from the open pit mine at Cap-Oeste. However, the Company recorded net profits of US$9.1 million (1H2016: US$2.2 million) for the first six months of the year largely owing to the disposal of Cap-Oeste Sur Este project ("COSE"). Excluding the disposal, the Company achieved a net loss of US$3.8 million.

At the end of the period short term debt amounted to US$27.1 million (31 December 2016: US$18.0 million). The increase in the debt position is attributable to the capital cost of the agglomeration circuit and working capital requirements due to lower initial revenues from gold sales as a result of the recoveries issues at Cap Oeste. The outstanding debt is intended to be repaid in full, and surplus cash flow generated, from the increased production from Cap Oeste as this ramps up and achieves its target level of production.

At Lomada de Leiva ("Lomada"), where mining activity ceased in May 2016, operations continue to perform well with production of 3,809 oz of Au during the period, 77% above plan. Production is expected to continue at least until the end of the current year.

At Cap-Oeste, initial recoveries were impacted by the high clay content resulting in lower than expected production in the period with production of 6,643 oz AuEq during the period. However, following the construction of the agglomeration circuit, which was completed in August following the commissioning of the crusher, we should see much improved production at Cap-Oeste going forward as its operation begins to ramp up. The Company believes that the agglomeration circuit will increase overall gold recoveries to 80%, which is considerably above the initial forecast recoveries of 65% without the agglomeration circuit. Production guidance for Cap-Oeste for 2017 is still being estimated but it is expected that it will be below the previous estimate of 68,500 oz AuEq for the year announced on 5 May 2017.

The Company disposed of COSE on 31 May 2017 to a subsidiary of Pan American Silver Corp ("PAAS"), for a total consideration of US$15 million (US$7.5 million of which is deferred to the earlier of 31 May 2018 and the commencement of production), plus a 1.5% net smelter return royalty. This transaction allows PAAS to treat and produce, in its plant, additional ore from the COSE mineral deposit, and provides Patagonia with the opportunity to reduce its net debt position while focusing on new opportunities.

As announced on 25 April 2017, Patagonia entered into an exclusive option with a subsidiary of PAAS to acquire the Calcatreu gold asset in Rio Negro ("Calcatreu") ("Calcatreu Option"). This six month option is exercisable at the discretion of Patagonia before 24 October 2017. The Calcatreu Option represents an excellent opportunity for the Company, as a junior miner, to acquire a near world class project in a mining friendly jurisdiction with approximately 1 million oz AuEq, with good geological potential, enabling the Company to diversify its regional operations and risks. Due diligence is under way and is expected to be complete before the six month option period.

We believe that Cap-Oeste will provide the Company with the cash flow to meet its short term financing commitments and will allow Patagonia to continue expanding its resource base by exploring our core targets in the region: Sarita, Manchuria, the San Jose project in Uruguay as well as advancing the Calcatreu project.

Under the current political and economic scenario, I am confident that Patagonia will succeed in reaching all its operational and exploration goals for the present year. I look forward to keeping all of our shareholders up to date as we advance with our plans to increase shareholder value. We are excited about the future that lies ahead for the Company.

Christopher van Tienhoven

Chief Executive Officer

26 September 2017

OPERATIONS REPORT

The following is a summary of the Company's operations, together with an update on exploration activities for the year to date.

Company's Properties

Mining operations at the Lomada de Leiva gold project (the "Lomada Project" or "Lomada") ceased as of May 2016. However, leaching of the heap leach stocks will continue for as long as gold continues to be recovered and it remains viable to do so and is expected continue to at least the end of the current year.

Following initial lower than expected recoveries from the heap leach pad at Cap-Oeste due to the high clay content of the ore, the Company has installed an agglomeration circuit to improve production. With the arrival in August of the primary impact crusher, capacity has increased to 3,000 tonnes per day of ore agglomerated. Initial tests on a 10,000 tonne parcel which was loaded on to the heap-leach pad have proved to be very successful, with an excellent granulometry and sized distribution produced and consumable consumption within estimated ranges.

In May, the COSE project was sold to Minera Triton Argentina S.A. (a subsidiary of Pan American Silver Corp. "PAAS") for a total consideration of US$15 million plus a 1.5% NSR royalty. Work has already begun on the construction of the decline and the box cut with Minera Triton currently installing camp facilities and mobilising admin and mining personnel to commence underground mining.

Exploration of the El Tranquilo block was halted in November 2015. Exploration in Argentina has been concentrated at La Manchuria and Sarita where extensive geophysics and mapping campaigns have been completed over both areas with several drill targets delineated and ready for advancement. A number of options are currently being evaluated to realise cash flow and advance exploration on the block including the possibility of a joint venture.

Follow up geophysics and geochemical rock chip and soil programmes have also been completed on the Carreta Quemada and Chamizo projects in Uruguay. Drill targets have been identified again at zone 13, Colla and Carreta with the intention to drill these targets in late 2017.

The JORC Code compliant resources delineated as at 31 December 2016 (COSE removed) are listed in the table below:

Notes:

* Lomada resource has not been depleted during 2016 to take account of production during the period, pending completion of third party estimation. Cap-Oeste pending third party depletion for mined material to end June 2017.

** AuEq oz were calculated on the prevailing Au:Ag ratio at the date of publication of the JORC/43-101 compliant resource reports for the individual projects.

*** The Company holds a 90% interest in PGSA, with the remaining 10% being held by the Santa Cruz government's wholly-owned mining company, Fomento Minero de Santa Cruz Sociedad del Estado ("FOMICRUZ"). The net attributable resource shows the 90% of the Cap-Oeste resource that is attributable to the Company.

COSE resource has removed following completion of its disposal on 31 May 2017.

Argentina

Cap-Oeste Project

The Cap-Oeste Project is the Company's flagship project and is located within a structural corridor extending six kilometres from the La Pampa prospect in the northwest to the Tango prospect in the southeast. To date, the Cap-Oeste deposit has an identified and delineated strike extent of 1.2 kilometres.

A low cost open pit mine with a heap leach processing facility similar to that at Lomada was completed in October 2016. However, as previously announced, initial gold and silver recoveries from the Cap-Oeste pad have been lower than expected due to the lack of percolation of the leaching solution owing to the high clay content in the upper sections of the Cap-Oeste orebody. The Company has sought to address this with the installation of the agglomeration circuit as detailed below. Accordingly, production at Cap-Oeste in the six months to 30 June 2016 were lower than expected with total production of 6,643 oz AuEq (5,788 oz of Au and 61,714 oz of Ag for a total estimated recovery of 29% Au and 10% Ag respectively).

The construction of the agglomeration circuit is now largely complete, with only the installation of the tunnel reclaim conveyor and feeder system to be completed, but this will not impact on production rates or recoveries. The primary impact crusher arrived on site mid-August and the Company estimates that approximately 75,000 tonnes will be agglomerated and loaded to the pad by the end of September. Once this initial load has completed its first leach cycle of 30 days, in November, the Company will provide further guidance on gold and silver production for the remainder of the year.

The Company continues to evaluate a possible pit optimisation as announced on 23 December 2016.

Mining operations are progressing well and only slightly behind schedule owing to a period of adverse weather conditions which affected logistics and operations during July. Approximately 60cm of snowfall and very low temperatures impeded blasting and mining operations for approximately one week. In addition, as announced on 31 August strong winds impacted installations, mining equipment and the main pad liner which have been repaired with the exception of the liner which has been ordered and will be laid down before the end of the year. However, there is sufficient space on the pad to continue production until the repair work is completed.

The total ore production of 455,000 tonnes at 1.65g/t Au and 52g/t Ag has been loaded onto the heap leach pad at the end of July. All ore mined from August onwards will be treated through the agglomerator before being loaded on to the heap leach pad and all material that has been loaded onto the pad prior to this date will be agglomerated once higher grade material from the mine is exhausted in early Q1 2018. Machine availability and utilisation has increased and forecast completion dates for the first pit shell remain on schedule for December 2017.

Lomada de Leiva Project

As previously announced, operations at Lomada were suspended in May 2016 with the entire mining fleet and the majority of the workforce relocated to the Cap-Oeste Project. The costs at Lomada were, as a result, significantly reduced when mining operations were suspended.

The Lomada pads continue to operate with production for the first half with 3,809 oz of Au recovered. The Company is assessing whether a finer comminution of the entire pad would increase recoveries before the pads undergo a final flush and rehabilitation work commences. This additional crushing would take place upon completion of the current Cap-Oeste pit design which is expected to be complete by January 2018.

Exploration Update Argentina

The brownfields exploration undertaken at Monte Leon with a view to sourcing additional material to the Cap Oeste heap leach project did not prove up sufficient resources both in terms of grade and tonnage to justify a mining operation that would be economically viable.

At La Manchuria project, a detailed pole-dipole induced polarisation (IP) survey was completed over approximately 3km2 centred on the known low sulphidation epithermal mineralisation. 3D modelling of the data indicates that resistivity anomalies associated with known mineralisation extend well beyond the area historically drilled. A reverse circulation (RC) drilling programme is proposed to test these targets in the 2nd half of 2017.

The Company continues to evaluate the possibility of a joint venture arrangement for the La Manchuria project with third parties in order to realise some cash flow from the deposit and to increase the exploration spend on existing targets within the Manchuria block. The block is highly prospective with over 145,000 oz AuEq of JORC Code compliant Indicated and Inferred resources already delineated at La Manchuria.

Very extensive ground magnetic and pole-dipole IP geophysical surveys (23.6 line-km) have been completed at the Sarita project, located approximately 10 km NW of Hunt Mining's Mina Martha Ag-Au mine. The project hosts a widespread system of banded low sulphidation Au-Ag veins, encompassing a small rhyolitic dome complex. The geophysical surveys have significantly improved the definition of the vein locations, especially in areas of Quaternary cover and trenching programme has been completed that has verified the vein locations. Drill testing of the priority targets is scheduled before the end of the year.

Reconnaissance mapping and sampling at Los Toldos project has identified brecciated and mineralised epithermal veining with elevated precious metal grades at El Amanecer prospect. A pole-dipole IP survey has been proposed to define drill targets.

A wide spaced pole-dipole IP survey (13.2 line-km) was completed over the Cerro Vasco prospect, located in the northern part of La Paloma block, approximately 18 km west of the Cerro Negro deposit. Widespread alteration, intense silicification and auriferous veining has been identified within the approximately 25km2 prospect area but much of the area is masked by a thin veneer of Quaternary gravels. Drilling is proposed to be completed before the end of the year. Drilling at the Bandurria prospect has not been possible due to the lack of a surface land agreement.

Reconnaissance mapping and sampling has been completed at Las Lajas project, located in the central part of the Deseado Massif. Two prospective areas of auriferous quartz veining have been defined and a ground magnetic survey was completed over El Licha vein.

A detailed ground magnetic survey was completed over the small Comino cateo located in the western sector of the Deseado Massif. The survey has defined a series of strong lineaments associated with hitherto unrecognised structures.

The Company is in the process of reviewing and rationalising its tenement portfolio with a view to prioritising targets and potentially securing more prospective areas. Regional target generation in Rio Negro province has been undertaken. 

Uruguay

Exploration has continued on the San José project as part of the Trilogy JV, where the Company has the option to acquire up to 100% of Trilogy Mining Corporation's dominant land package in the sparsely explored Paleoproterozoic San José Greenstone Belt that shows strong similarities with the Birimian Greenstone Belt in West Africa.

After drilling during late 2016 confirmed the location of a regional auriferous shear zone at the Zona 13 prospect, a programme of pole-dipole IP was completed that has traced the structure a further 2.2 km to the southwest, where it remains open. RC drilling is proposed to test the structure before the end of the year.

IP surveys and geological mapping completed at the Zona 15 prospect have defined a regional shear zone, with extreme geophysical characteristics. It is interpreted to be a graphitic shear, possibly the regional Cufre Shear Zone, and a possible source for the strong gold values historically reported from panned concentrate samples in the vicinity. Two diamond drill holes are proposed to test the shear.

A wide spaced IP survey has been completed at the Carreta Quemada prospect and three trenches have been excavated which have returned broad zones of low-concentration Au mineralisation, but to date, no regional structural control for mineralisation has been identified. Very widespread and elevated Au in panned concentrate soil has been reported from this large prospect but exploration efforts are yet to define a high-grade source for the gold. A potential volcanogenic hosted massive sulphide (VHMS) target has been identified where strong base metal anomalism has been reported from surface sampling of metabasalt.

IP surveying and three trenches have been excavated at the Colla prospect after high grade gold was reported from surface sampling. The trenching exposed an iron oxide rich, muscovite-bearing metaquartzite interpreted as a shear zone that hosts elevated gold concentrations. A pole-dipole IP survey has defined a strong chargeability anomaly coincident with the interpreted shear zone that extends for at least 1.8 km and remains open to the southwest. A regional scale stream sediment sampling programme is in progress and a ground magnetic survey is proposed. Drilling will be undertaken as soon as the required statutory permits are granted.

A ground magnetic survey and geological mapping has been completed at the Nueva Helvecia prospect which appears to have confirmed the location of shear and breccia zones that may be the source of regional panned concentrate gold anomalies. A pole-dipole IP survey is proposed to define drill targets.

Matthew Boyes

Chief Operating Officer

26 September 2017

Condensed Consolidated Interim Statement of Comprehensive Income

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

Condensed Consolidated Interim Statement of Financial Position

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

Condensed Consolidated Interim Statement of Changes in Equity

(Unaudited)

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

Condensed Consolidated Interim Statement of Cash Flows

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

.

The financial information on pages [7 to 10] represent the results of the parent company Patagonia Gold Plc ("Patagonia Gold" or the "Company") and its subsidiaries, collectively known as the "Group".

1. Basis of preparation

Patagonia Gold Plc is a company registered in England and Wales. The Company's ordinary shares are traded on the AIM market of the London Stock Exchange.

These unaudited condensed consolidated interim financial statements have been prepared in accordance with IAS 34 as adopted by the European Union and with the Companies Act 2006 applicable to companies reporting under IFRS. The Group's unaudited condensed consolidated interim financial statements have also been prepared in accordance with IFRS as issued by the International Accounting Standards Board ("IASB"). This condensed consolidated financial information does not comprise statutory financial statements within the meaning of Section 434 of the Companies Act 2006. Statutory financial statements for the year ended 31 December 2016 were approved by the Board of Directors on 27 March 2017. These financial statements which contained an unqualified audit report under Section 495 of the Companies Act 2006, with an emphasis of matter paragraph on the carrying value of investments in subsidiary companies, did not contain any statements under Section 498 (2) or (3) of the Companies Act 2006, and have been delivered to the Registrar of Companies in accordance with Section 441 of the Companies Act 2006.

The accounting policies applied in these condensed consolidated interim financial statements are consistent with those used in the annual consolidated financial statements for the year ended 31 December 2016. These condensed consolidated interim financial statements should be read in conjunction with the annual consolidated financial statements. The accounting policies have been applied consistently throughout the Group for the purposes of preparation of these condensed consolidated interim financial statements. There has been no change in critical accounting estimates from year-end.

2. Going concern

The attached financial statements are prepared on a going concern basis. Having assessed the revised cash flow projections after the COSE project disposal through September 2019, the Directors believe this basis to be appropriate for the following reasons.

Patagonia has successfully transformed itself from a pure exploration company to a fully fledged producer. Until Lomada started commercial production in 2013, Patagonia Gold's focus was exploration work in its portfolio of properties in Chubut, Rio Negro and Santa Cruz. The Company started a small heap leach operation at Lomada which had a relatively short life and in May 2016 the mining operation was suspended. The Lomada pad continues to produce gold at approximately 20 ounces per day and the Company has decided to leave the pad irrigating for the time being until the process becomes unviable.

Anticipating the end of the Lomada mine, the Company advanced the Cap-Oeste project through the construction of a heap leach operation similar to the one at Lomada.

With initial recoveries lower than estimated, the Company completed the installation of an agglomeration circuit to improve recovery rates which started commissioning in mid-July. With the agglomeration circuit now operating at 100% capacity the Directors believe that the cash flow generated from this project will be sufficient to meet its obligations and continue to lower the Company's debt position, while at the same time enabling it to continue with its exploration activities. In addition, with the proceeds from the disposal of the COSE project, Patagonia has lowered its debt requirements.

Considering the nature of the Group's current and planned activities and the excellent opportunity of the Calcatreu Option for the Company, the Directors have therefore concluded that the financial statements should be prepared on a going concern basis.

3. Recent accounting pronouncements

The following IFRS standards and amendments to existing standards have been published and are mandatory for the Company's accounting periods beginning on or after 1 January 2017 or later periods. The Company has not implemented early adoption:

— IFRS 9 'Financial Instruments', effective for annual periods beginning on or after 1 January 2018. The amendments to IFRS 9 introduce extensive changes to IAS 39's guidance on the classification and measurement of financial assets and introduces a new "expected credit loss" model for the impairment of financial assets;

— IFRS 15 'Revenue from contracts with customers', IFRS presents new requirements for the recognition of revenue, replacing IAS 18 'Revenue', IAS 11 'Construction Contracts' and several revenue-related interpretations. Management do not consider that this will have a significant impact on the Group's financial statements; and

— IFRS 16 'Leases', effective for annual periods beginning on or after 1 January 2019. IFRS 16 replaces IAS 17. It completes the IASB's project to overhaul lease accounting. Leases will be recorded on the statement of financial position in the form of right-of-use asset and a lease liability.

The effect of the new standards and interpretations have been considered by management and are not expected to result in a material adjustment to the consolidated financial statements.

4. Segmental analysis

Management do not currently regard individual projects as separable segments for internal reporting purposes with the exception of the Lomada Project, which commenced commercial production in Q3 2013 and the Cap-Oeste Project where construction work has been completed. All revenue in the period is derived from sales of gold and silver.

The Group's net profit and its geographic allocation of total assets and total liabilities may be summarised as follows:

(1) Segment represents other exploration projects.

(2) On 31 May 2017, the Company sold the COSE project for US$ 15 million with costs of sale of US$ 1.048 million.

(1) Segment represents other exploration projects.

(1) Segment represents other exploration projects.

The Group's geographic allocation of exploration costs is as follows:

(1) Segment represents exploration projects other than the Lomada Project, Cap-Oeste Project and the COSE Project.

From 1 September 2010 onwards, expenditures incurred at the Lomada Project are capitalised and disclosed as mineral properties - mining assets (See Note 8). From 1 April 2011 certain costs are included in inventory.

From 1 January 2016 onwards, expenditures incurred at the Cap-Oeste Project are capitalised and disclosed as mineral properties - mining assets (See Note 8). From 1 October 2016 certain costs are included in inventory.

Exploration costs incurred at all the other projects are written off to the statement of comprehensive income in the period they were incurred.

5. Other administrative costs

6. Remuneration of Directors and key management personnel

Parent company Directors' emoluments:

In the six months ended 30 June 2017, the highest paid Director received $60 thousand (six months ended 30 June 2016: $125 thousand). This amount does not include any share-based payments charge.

Key management personnel emoluments:

7. Profit / (Loss) per share

The calculation of basic and diluted earnings per share is based on the following data:

At 30 June 2017, there were 93,183,000 (30 June 2016: 94,958,000; 31 December 2016: 93,508,000) share options in issue, which would have a potentially dilutive effect on the basic profit per share in the future.

During 2016, the 24,705,000 warrants that were in issue at 30 June 2016 expired without being exercised.

8. Mineral properties

Mining assets

The Lomada Project completed the trial heap leach phase and entered full commercial production in Q3 2013. From 1 September 2010, all development costs incurred in respect of the project have been capitalised as mineral properties - mining assets. The revenue received from the sale of gold and silver recovered from the Lomada trial heap phase was offset against the capitalised costs of Lomada Project development in compliance with IAS 16. Amortisation is charged based on the unit-of-production method.

The Company completed the development of Cap-Oeste Project in September 2016, entering into production in the last quarter of the year. As a result of the experience gained at Lomada, no trial production period was required at Cap-Oeste. Revenue from commercial production was therefore recognised from the outset. The development expenditure capitalised will be amortised based on the unit of production method.

Trilogy Mining Corporation

In January 2016, Patagonia Gold entered into an earn-in agreement with Trilogy Mining Corporation ("Trilogy") in relation to the San José Project in Uruguay. This agreement with Trilogy represents a great opportunity to acquire additional gold projects with good geological potential in a new jurisdiction, enabling the Company to diversify its regional operations and risks. This has been recognised within mining assets additions at a cost of $1.071 million. No fair value has been attributed to the future potential investment or earn-in at this stage, the Directors consider it to be too early to ascribe any value to this. The Directors have considered and concluded that no impairment in value is needed at 30 June 2017. This investment was made directly by the parent Company and is therefore reflected in the parent Company balance sheet as well as that of the Group.

Surface rights

The Company owns the surface rights to over 63,000 hectares of land encompassing the Estancia La Bajada, Estancia El Tranquilo and the Estancia El Rincon.

The Company has clear title and outright ownership over Estancia La Bajada and Estancia El Tranquilo. There is a back in right granted to the sellers under Estancia El Rincon's title deed whereby the Company irrevocably committed to resell the estancia to its former owner in the event that two consecutive years elapse without mining activities. Current activity on this estancia includes the Lomada project.

Assets in the course of construction

From 1 March 2011 to 31 May 2017, exploration costs on the COSE Project were capitalised as mineral properties - assets in the course of construction. On 31 May 2017, the Company completed the sale of the COSE project to a subsidiary of Pan American Silver Corp. for a total consideration of US$15 million.

9. Property, plant and equipment

Improvements and advances relate to the development and modification of plant, machinery and equipment, including advance payments. Additions in 2016 represented advance payments relating to the agglomeration circuit that started commissioning in mid-July 2017.

10. Mining rights