11th Aug 2006 07:01
European Goldfields Ltd11 August 2006 For Immediate Release 11 August 2006 European Goldfields Limited RESULTS FOR Q2 2006 STRATONI PRODUCTION CONTINUES TO RAMP-UP SIGNIFICANT PROGRESS ON OTHER THREE DEVELOPMENT-STAGE PROJECTS European Goldfields Limited (AIM: EGU / TSX: EGU) ("European Goldfields" or the"Company") today reports its results for the second quarter to 30 June 2006.Highlights during 2006 are: Financial: • Sales of US$17.4 million and gross profit of US$8.6 million in H1 2006 • Profit of US$1.3 million (before tax) for H1 2006, compared with a loss of US$5.4 million in H1 2005 • Operating cash flow of US$4.5 million for H1 2006, increasing by US$8.4 million vs. H1 2005 • Working capital of US$36.5 million at 30 June 2006; funded to permitting of new projects and beyond • Working capital up by US$2.7 million in H1 2006, despite expenditure on three development projects Greece: • Stratoni production continues to ramp-up; 51% increase in ore mined in Q2 over Q1 2006; over halfway to achieving full year production target • Greek government forms a technical committee with Hellas Gold to facilitate the permitting process for the Skouries and Olympias projects • Skouries reserves increased by 13% • Final feasibility studies on track for Skouries and Olympias • Further off-take agreement signed for the sale of Olympias stockpile of gold concentrates Romania: • Two viable development options identified for the Certej project • Reserves announced, confirming Certej can produce a robust return at $425/oz gold and $7/oz silver • Substantial increase in gold recoveries received for on-site production of gold dore option • Clear path identified for Certej permitting and development Commenting on the results, David Reading, Chief Executive Officer of EuropeanGoldfields, said: "We are proud to report a profit for the first half of 2006 asproduction continues to ramp-up at Stratoni. We have started to sell Olympiassurface concentrates and this will also contribute to our increasing cash flowfrom operations. We are encouraged that the Greek government has taken the initiative to set up atechnical committee to facilitate the permitting process for our Skouries andOlympias projects. We look forward to working in close collaboration with theGreek government on the building of these major projects. Final feasibilitystudies are on track for completion by year-end, with the help of an integratedteam of Greek and international consultants. In Romania, we received positive results using the Albion Process to producegold dore on site. We now have the flexibility of two viable development optionsfor the Certej project. Having identified a clear path to developing the Certejproject, we now look forward to accelerating permitting procedures in the comingmonths." GREECE Stratoni production continues to ramp-up - During Q2 2006, 47,966 wet tonnes ofore were mined from underground, 35,810 dry tonnes of ore were milled at theStratoni plant and 7,850 tonnes of zinc and lead/silver concentrates wereshipped and sold for total revenues of US$8.27 million, for which EuropeanGoldfields' 65%-owned subsidiary Hellas Gold S.A. ("Hellas Gold") reported agross profit of US$4.33 million. During H1 2006, 79,718 wet tonnes of ore were mined from underground, 76,143 drytonnes of ore were milled at the Stratoni plant and 17,756 tonnes of zinc andlead/silver concentrates were shipped and sold for total revenues of US$17.36million, for which Hellas Gold reported a gross profit of US$8.63 million.Hellas Gold ended H1 2006 with a stockpile inventory of 12,326 wet tonnes of oremined. With this production level in H1 2006, Hellas Gold has achieved over half of itsfull year production target for 2006, despite the mine still being in a ramp-upphase. Hellas Gold is completely un-hedged and fully exposed to metal prices under itsoff-take agreements. In Q2 2006, three shipments of concentrates were sold compared with fourshipments in Q1 2006, due to the timing of shipments early in Q3. As a result,Hellas Gold reported a reduction in revenues in Q2 2006 compared to Q1 2006.However, Hellas Gold ended the second quarter with a large stockpile ofconcentrates ready to be shipped. Hellas Gold has since sold 2 shipments ofconcentrates in Q3 2006, with a third shipment scheduled next week. Hellas Goldexpects to complete substantially more shipments of concentrates inH2 than in H1 2006, reflecting the ramping-up of production during the year. Despite a reduction in shipments and revenues in the quarter, operating profitsincreased marginally inQ2 2006, reflecting an improved operating margin at 52%. Ore production rates have steadily increased since the beginning of the year,from 400 tonnes per day (tpd) in January to 850 tpd in June, resulting in a 51%increase in ore mined in Q2 2006 over Q1 2006. Ore production is on track toachieve the anticipated 170,000 tonnes by the end of 2006, and is expected toincrease steadily thereafter up to a maximum of 400,000 tonnes per annum by yearfive. Ongoing rehabilitation work at the Stratoni plant in Q2 2006 included theinstallation of a new flotation cell to improve zinc recovery. Optimumrecoveries of above 90% are now being achieved by the Stratoni plant. In Q2 2006, the rehabilitating and preparing of mining faces continued, bringingin levels close to the bottom of the mine to be ready for mining from the newdecline access. Work has also progressed well on the extension of the main rampabove 252m level to access the higher grade ore in the upper part of the mine. Improved backfilling capabilities at Mavres Petres, including a new "boosterpump", have ensured that voids from historic and current operations have beentight filled even in the upper part of the mine. Cleaning and rehabilitation work at the mined-out Madem Lakkos mine hascontinued, and Hellas Gold commenced backfilling of the old workings to reducefuture water pumping and treatment costs and provide other environmentalbenefits. A filter press for producing filter cake from the fine portion of the millprocess tailings and water treatment residue has been ordered and is expected tobe commissioned by the fourth quarter of 2006. In the meantime, Hellas Goldcontinues to store the tailings slurry and water treatment sludge in theChevalier pond. Hellas Gold plans to construct a second water treatment plant at the Stratonimine, with similar capacity and design to the plant already at the Stratonimill. This will improve efficiency and provide capacity for extreme rainfallevents. The new plant will include a second filter press to allow dry storage offilter cake. Significant progress has also been made on the new decline to the Mavres Petresorebody, which is now480 metres in and advancing at close to 5m per day now that it is through thebad ground associated with the footwall fault zone and the weathered ground atthe portal. The new decline is not necessary for mining in 2006 but becomes critical for thefuture production ramp-up involving the deeper portions of the orebody, as wellas providing better ventilation. Significant exploration upside at Stratoni - Stratoni is a robust business withminimal capital investment due to the extensive existing infrastructure. It alsohas well-defined reserves over a six-year life and exciting exploration upsideas the orebody is open in all directions. The new decline is crossing the zonebetween old, mined-out areas and the current reserve of the Mavres Petresorebody, providing excellent access for exploration of potential upside. The new decline at Stratoni has intersected lead and zinc sulphidemineralisation over a true thickness of approximately 1.75 metres located some1.5 kilometres to the east and along strike from the Mavres Petres orebody.Significantly, this mineralisation occurs within the same marble unit as theexisting reserve and, like the Mavres Petres orebody, is immediately adjacent tothe Stratoni fault, indicating the potential for further zones of mineralisationto occur along the 1.5 kilometre corridor formed by the marbles and the fault.This confirms European Goldfields' current geological model for extensions tothe Mavres Petres orebody. This highly prospective corridor will be drill-tested from the new decline,commencing in Q3 2006. The drilling will be conducted from mucking baysexcavated during the decline's progress. As soon as a third mucking bay has beenfinished in September, exploration drilling can start. The first target will be the east extension of mineralisation in the mined outMadem Lakkos mine area which is easily accessible from the first availabledrilling bay in the new decline. Historic data from this area indicates gradesin the range of 9 to 10.7% lead, 9 to 9.6% zinc and 160 to 185.3 g/t silver.Drilling will then investigate the east and west extensions of the Mavres Petresorebody. Greek government forms technical committee to facilitate permitting process - InJanuary 2006, Hellas Gold submitted a business plan to the Greek State for thejoint development of its major gold and base metal projects of Skouries andOlympias. This submission represents a significant milestone in obtaining thepermits for these projects. The business plan focuses on a phased approach to the development of theprojects with emphasis on achieving full production at the Skouries gold-copperporphyry deposit as soon as possible, and the phasing of the Olympiasgold-lead-zinc-silver deposit. This approach minimises financial risk by thephased injection of capital. The principal revenue stream in the early phaseswill be through the sale of concentrates. In March 2006, Hellas Gold received an official response from the Greek Ministryof Development(the "Ministry") on the business plan. The response states that the Ministry isin agreement with the principles stated in the business plan, and that theMinistry considers the business plan to be in the best interest of the Greekeconomy. This response was received by Hellas Gold within the timeframe providedfor in its contract with the Greek State. A joint technical committee, with representatives from the Ministry, Hellas Goldand European Goldfields, has been created to facilitate Hellas Gold's ongoingwork on a full environmental impact study, which is expected to be submitted tothe Greek government in Q4 2006. On approval of the study, the environmentalpermits for Skouries and Olympias are expected to be issued. Hellas Gold will then submit to the Greek government a final technical report onthe Skouries and Olympias projects, which will restate the principles of thebusiness plan and take into account any conditions detailed in the environmentalpermit. The mining permits are expected to be issued on approval of thetechnical report by the Greek government. Skouries reserves increased by 13% - In July 2006, European Goldfields announceda 13% increase in reserve tonnes for its Skouries deposit, which were reportedas follows: Reserve category '000t Gold Gold Copper Copper (g/t) (Moz) (%) ('000t)Proven 77,535 0.87 2.18 0.54 415Probable 68,667 0.78 1.73 0.55 374Total 146,202 0.83 3.91 0.54 789 The increase in reserves resulted from a new mine plan and schedule whichincludes the adoption of a deeper open pit, an optimised sub-level caveunderground mine design and improved long-term metal price forecasts. Theupdated reserve was estimated by SRK Consulting (UK) Ltd at a gold price of $425/oz and a copper price of $1.1/lb. The updated reserve is based on a new pit optimisation and subsequent practicalpit design along with a detailed underground mine design based on relevant netsmelter return (NSR) cut-offs and practical mining constraints which takes intoaccount mining recoveries and dilution. Final feasibility studies on track for Skouries - In July 2006, EuropeanGoldfields announced that Hellas Gold had retained the services of Aker KvaernerEngineering Services, Golder Associates and a number of Greek consultants toassist in the development of the Skouries project. Hellas Gold is actively pursuing various studies for input in a final bankablefeasibility study for Skouries. These studies, which are expected to becompleted by the end of 2006, include: • A cost and definition study for the Skouries process plant and associated infrastructure, undertaken by Aker Kvaerner Engineering Services • The design of the Skouries tailings disposal system and tailings management facility, undertaken by Golder Associates • An Environmental Impact Study, carried out by the Greek consulting group Enveco • A study of hydrogeology and creek boundaries by IGME, the Greek Institute of Geology & Mineral Exploration, to be used in the development of a new hydrogeological model Further off-take agreement signed for sale of Olympias concentrates - Olympiasbenefits from an existing stockpile of gold concentrates representing a reserveof about 258,000 tonnes grading 23.3 g/t gold (containing 193,000 oz of gold),in addition to substantial underground reserves of gold, lead, zinc and silver. In May 2006, Hellas Gold entered into an off-take agreement with Shandong MICBioGold Ltd (a subsidiary of Michelago Limited of Australia) for the initialsale of at least 18,000 wet metric tonnes of Olympias concentrates. Theagreement also includes the possible sale of an additional 100,000 dry metrictonnes of concentrates over a three-year period from April 2007. The monthlyshipments of the initial 18,000 wmt of concentrates commenced in July 2006 andare expected to end in April 2007. The price payable for the concentrates willvary with the prevailing gold price. The agreement produces an attractive returnfor Hellas Gold at a gold price above US$500/oz. In July 2006, Hellas Gold also entered into an off-take agreement with MRITrading AG of Switzerland for the sale of 3,000 wet metric tonnes ofconcentrates. Shipments are scheduled between July and September 2006. European Goldfields and Hellas Gold are currently in advanced stages ofnegotiations for the sale of the remaining tonnage of concentrates in theOlympias stockpile. GIS compilation near completion - European Goldfields has undertaken to capturedigitally into a geographical information system (GIS) all historical data onthe licences in northern Greece. This comprises the compilation of all existinggeological and structural mapping, topographic, stream geochemistry, publishedregional airborne magnetics and historic drilling into a single digitaldatabase. In addition to compiling existing data, European Goldfields hasacquired and processed new satellite imagery over the Greek licences. A total of seven new targets have been identified from the imagery analysiswithin the Hellas Gold permits and a further nine have been identified adjacentto the company's licences. The targets are based on a combination of structure,clay / iron anomalies and circular features. The targets are currently beingassessed in terms of the newly digitised historic data for initial groundinvestigation in H2 2007. This is expected to generate new drill targets ofsimilar mineralisation styles to Stratoni, Olympias and Skouries. ROMANIA In Romania, European Goldfields has made significant progress on its Certejproject by confirming the viability of two development options and identifying aclear path to developing and permitting the project. Clear path for permits at Certej - European Goldfields has established a clearpath to applying for permits to develop its 80%-owned Certej project in Romania. European Goldfields has recently completed all necessary Environmental ImpactAssessments (Levels I and II) for the Certej project, and is now activelyconducting various additional studies in support of its permit application,including: • An Environmental Impact Study (EIS), to be completed in December 2006, which includes: - A Social Impact Assessment Study, to be completed by November 2006 - An Archaeological Study, to be completed by the Ministry of Culture by November 2006 • A Romanian Feasibility Study (RFS), to be submitted to the government together with the EIS in December 2006 Geotechnical drilling is currently in progress to confirm the suitability of theselected site for the process plant, to determine top soil depth for theproposed waste dumps location, to investigate the underlying rock properties forthe sites of the tailings management facilities and for hydrologicalinvestigations. This work is expected to be completed by the end of September2006. European Goldfields already holds a mining permit for Certej, which is currentlybeing exploited in a small scale by Minvest S.A., the Company's partner inRomania. Minvest, the state-owned mining company, owns the remaining 20%interest in Certej. In December 2006, European Goldfields plans to submit the RFS and EIS as part ofits application for environmental and mining permits, allowing an increase inproduction at Certej and the processing of ore on site. The permits and adetailed urbanisation plan would then be expected by end-August 2007 following astandard public consultation process with the local community. Customaryconstruction and public utility permits would follow later in 2007 when thedetailed engineering design has been completed for the site plant. In the meantime, European Goldfields expects to receive by November 2006 ageneral urbanisation certificate confirming the designation of Certej as anindustrial mining area. ECOIND and Cepromin, Romanian companies with proven track records inenvironmental research and permitting procedures, and the Technical Universityof Civil Engineering Bucharest have been employed to assist in preparing thesestudies. The studies also include significant input from internationalconsultants such as RSG Global, Golder Associate and Core Resources. Flexibility of two viable development options - European Goldfields is activelypursuing two viable development options for the Certej project: • The production and sale of high-grade gold/silver flotation concentrates • The production of gold dore on site using the Albion Process The project can also be developed in phases, starting with the sale ofconcentrates in the early years followed by the production of gold dore on site. Using the Albion Process to produce gold dore on site is expected tosignificantly increase project profitability and returns. Sale of high-grade concentrates - In April 2006, European Goldfields announcedthe conversion of resources into Canadian NI 43-101 compliant reserves for theCertej deposit, based on the sale of concentrates option. The reserve estimationwas carried out by independent consultants RSG Global Pty Ltd ("RSG Global") andcan be summarised as follows: Reserve category Million tonnes Gold Gold Siver Silver (g/t) (Moz) (g/t) (Moz) Probable 27.7 2.0 1.76 11.6 10.35 Note: Lower cut-off grade of 0.8 g/t gold. Uniform conditioning and based on aselected mining unit model using 6.25 X 12.5 X 2.5 metre blocks. The reserve was estimated at a gold price of $425/oz and a silver price of $7/oz. This estimation followed the completion of extensive metallurgical testwork,an in-house pre-feasibility study and subsequent pit optimisation and pit designwork by RSG Global, which included a geotechnical drilling programme andgeotechnical pit design parameters completed by Golder Associates of the UK. The project is expected to involve the mining and processing of 3.0 Mt of oreper annum over at least nine years. This would yield approximately 249,000tonnes of concentrate per annum with high grades averaging 21 g/t gold and 125 g/t silver, with a flotation gold recovery of approximately 88%. This translates into an annual production of approximately 170,000 oz of contained gold in the concentrate. The conversion of resources into reserves means that the project can support thenecessary capital investment and produce a robust return at a gold price of $425/oz and above. Production of gold dore on site - The Albion Process is an alternativedevelopment route to the sale of concentrates at Certej. The Albion Process is acombination of ultra-fine grinding of concentrates and oxidatative leaching atatmospheric pressure. European Goldfields announced in July 2006 that it had received additionalresults of batch metallurgical testwork indicating a substantial increase ingold recoveries from samples of flotation concentrates produced from Certej ore.The new results using the Albion Process at optimised oxidation conditionssuggest recoveries from concentrates of approximately 96% for gold, compared topreviously reported recoveries of 84%. Silver recoveries remain stable,averaging 92%. Hydrometallurgy Research Laboratories (HRL, a subsidiary of Xstrata PLC) iscompleting the Stage III pilot plant scale continuous testwork programme usingthe Albion Process, after which European Goldfields expects to publish CanadianNI 43-101 compliant reserves based on this process by the end of 2006.HRL has already successfully completed Stages I and II of the metallurgicaltestwork programme. Generative study initiated - European Goldfields has initiated a generativestudy on its licensed areas in Romania by engaging the services of aninternationally renowned expert in structural controls and epithermalmineralisation. A field visit has been carried out along with a review of allexploration data. The study has highlighted an overall control of Certej by lowangle faulting. The faults have been important in the development of goldmineralisation and have also clearly acted as the main pathways for mineralisingfluids. The study has highlighted the possibility of additional mineralisationwithin linkage structures between the controlling faults. In addition, the modelis now being applied to other areas within European Goldfields' permits andadjacent areas in order to identify targets of possible similar style ofmineralisation. For further information please contact: European Goldfields: website: www.egoldfields.comDavid Reading, Chief Executive Officer e-mail: [email protected]: +44 (0)20 7408 9534 Buchanan Communications: e-mail: [email protected] WilleyBobby MorseOffice: +44 (0)20 7466 5000Mobile: +44 (0)7718 771 513 Renmark Financial Communication: website: www.renmarkfinancial.comNeil Murray-Lyon e-mail: [email protected] Perron e-mail: [email protected]: +1 514 939 3989 Resources & reserves parameters For additional information on the resource and reserve estimates quoted in thisnews release, please refer to the Company's Resources & Reserves Declaration atwww.egoldfields.com/goldfields/resources.jsp.Patrick Forward, General Manager, Exploration of the Company, was the QualifiedPerson under Canadian National Instrument 43-101 responsible for reviewing thedisclosure of resource and reserve estimates quoted in this news release. Forward-looking statements Certain information included in this news release, including any information asto the Company's future financial or operating performance and other statementsthat express management's expectations or estimates of future performance,constitute "forward-looking statements". The words "expect", "will", "intend","estimate" and similar expressions identify forward-looking statements.Forward-looking statements are necessarily based upon a number of estimates andassumptions that, while considered reasonable by management, are inherentlysubject to significant business, economic and competitive uncertainties andcontingencies. The Company cautions the reader that such forward-lookingstatements involve known and unknown risks, uncertainties and other factors thatmay cause the actual financial results, performance or achievements of theCompany to be materially different from its estimated future results,performance or achievements expressed or implied by those forward-lookingstatements and the forward-looking statements are not guarantees of futureperformance. These risks, uncertainties and other factors include, but are notlimited to: changes in the worldwide price of gold, base metals or certain othercommodities (such as fuel and electricity) and currencies; the successful andtimely permitting of the Company's Skouries, Olympias and Certej projects;legislative, political, social or economic developments in the jurisdictions inwhich the Company carries on business; operating or technical difficulties inconnection with mining or development activities; the speculative nature of goldand base metals exploration and development, including the risks of diminishingquantities or grades of reserves; and the risks normally involved in theexploration, development and mining business. These factors are discussed ingreater detail in the Company's Annual Information Form for the year ended 31December 2005, filed on SEDAR at www.sedar.com. The Company disclaims anyintention or obligation to update or revise any forward-looking statementswhether as a result of new information, future events or otherwise. MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE THREE- AND SIX-MONTH PERIODS ENDED 30 JUNE 2006 The following discussion and analysis, prepared as at 11 August 2006, isintended to assist in the understanding and assessment of the trends andsignificant changes in the results of operations and financial conditions ofEuropean Goldfields Limited (the "Company"). Historical results may not indicatefuture performance. Forward-looking statements are subject to a variety offactors that could cause actual results to differ materially from thosecontemplated by these statements. The following discussion and analysis shouldbe read in conjunction with the Company's unaudited consolidated financialstatements for the three-month periods ended 30 June 2006 and 2005 andaccompanying notes (the "Consolidated Financial Statements"). Additional information relating to the Company, including the Company's AnnualInformation Form, is available on the Canadian System for Electronic DocumentAnalysis and Retrieval (SEDAR) at www.sedar.com.Except as otherwise noted, all dollar amounts in the following discussion andanalysis and the Consolidated Financial Statements are stated in United Statesdollars. Overview The Company, a company incorporated under the Yukon Business Corporations Act,is a resource company involved in the acquisition, exploration and developmentof mineral properties in Greece, Romania and the Balkans. The Company's Common Shares are listed on the AIM Market of London StockExchange plc and on the Toronto Stock Exchange (TSX) under the symbol "EGU". Greece - The Company holds a 65% interest in Hellas Gold S.A. ("Hellas Gold").Hellas Gold owns assets in northern Greece which consist of three depositswithin 70-year mining concessions covering a total area of 317 km(2). Thedeposits include the polymetallic projects of Stratoni and Olympias whichcontain gold, lead, zinc and silver, and the copper/gold porphyry body referredto as Skouries. All three deposits have been well defined with over 200,000metres of drilling and the completion of feasibility studies and laterengineering studies. The total proven and probable reserves of these assets are 7.8 Moz gold, 65.8Moz silver, 0.8 Mt copper,0.7 Mt lead and 0.9 Mt zinc, from a measured and indicated resource base of 9.4Moz gold, 74.5 Moz silver, 1.0 Mt copper, 0.8 Mt lead and 1.1 Mt zinc (65%attributable). These assets represent some of the largest defined deposits in Europe. The threedeposits are located within a 10 km radius of each other, making thiseffectively a gold and base metals centre. Furthermore, both Stratoni andOlympias were previously in production and have extensive existing mining andplant infrastructure and a ship-loading facility on the Aegean Sea. Hellas Gold's assets also include revenue-generating stockpiles of goldconcentrates. In September 2005, Hellas Gold resumed production at Stratoni following theaward by the Greek State of all necessary environmental and mining permits.Hellas Gold is in the process of applying for similar permits for Olympias andSkouries, having met its first milestone by submitting business plans to theGreek government in January 2006. Romania - The Company holds four mineral properties located within the "GoldenQuadrilateral" area of Romania. The Company recently announced the conversion ofresources into Canadian National Instrument 43-101 compliant reserves for its80%-owned Certej project, underpinning the value of the project. The Certejdeposit hosts probable reserves of 27.7 Mt grading 2.0 g/t gold and 11.6 g/tsilver for 1.76 Moz gold and10.35 Moz silver (80% attributable). The Company is now completing a finalfeasibility study for submission to the Romanian government by the end of 2006,in support of an application for environmental and mining permits to develop theCertej project. Results of operations The Company's results of operations for the three- and six-month periods ended30 June 2006 were comprised primarily of activities related to the results ofoperations of the Company's 65%-owned subsidiary Hellas Gold in Greece and theCompany's regional exploration programs in Romania. In September 2005, Hellas Gold commenced production at its Stratoni mine inGreece. The following table summarises operational results at Stratoni for thetwo most recently completed quarters. Stratoni Mine (Greece) --------------------------------------------------- ------------- ------------- --------- Q1 2006 Q2 2006 Total---------------------- -------------- ----------- ----------Inventory (start of period)Ore mined (wet tonnes) 10,963 1,155 -Zinc concentrate (tonnes) 95 1,034 -Lead/silver concentrate (tonnes) 1,268 308 - ProductionOre mined (wet tonnes) 31,752 47,966 79,718 Ore milled (tonnes) 40,333 35,810 76,143 - Average grade: Zinc (%) 8.89 9.45 9.15 Lead (%) 7.28 5.83 6.60 Silver (g/t) 183.45 146.09 165.88 Zinc concentrate (tonnes) 6,222 6,041 12,263 - Containing: Zinc (tonnes) 3,229 3,098 6,327 Lead concentrate (tonnes) 3,662 2,703 6,365 - Containing: Lead (tonnes) 2,667 1,881 4,548 Silver (oz) 207,501 141,817 349,318 SalesZinc concentrate (tonnes) 5,283 5,513 10,796 - Containing payable: Zinc (tonnes)* 2,335 3,180 5,515 Lead concentrate (tonnes) 4,623 2,337 6,960 - Containing payable: Lead (tonnes)* 3,166 1,799 4,965 Silver (oz)* 252,544 140,788 393,332 Operating costs per tonne milled ($) 96 130 112Operating costs per unit of payable: - Zinc ($) 744 684 709 - Lead ($) 496 317 431 - Silver ($) 4.04 3.45 3.83 Inventory (end of period)Ore mined (wet tonnes) 1,155 12,326 -Zinc concentrate (tonnes) 1,034 1,562 -Lead/silver concentrate (tonnes) 308 674 - Financial information (in thousandsof US dollars)Sales ($) 9,083 8,274 17,357Gross profit ($) 4,295 4,330 8,625Capital expenditure ($) 526 1,351 1,877Amortisation and depletion ($) 456 942 1,398---------------------- -------------- ----------- ---------- * Net of smelter deductions The Company's results of operations for the eight most recently completedquarters are summarised in the following table: ------------------ ------ ------ ------ ------ ------ ------ ------ ------(in thousandsof US dollars, 2006 2006 2005 2005 2005 2005 2004 2004except per share Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3amounts) $ $ $ $ $ $ $ $ ------------------ ------ ------ ------ ------ ------ ------ ------ ------Statement of lossand deficitSales 8,274 9,083 1,464 - 57 - - -Cost of sales 3,944 4,788 1,367 - - - - -Gross profit 4,330 4,295 97 - 57 - - -Interest income 767 300 339 272 326 326 279 143Expenses 4,345 3,558 5,079 3,536 2,287 3,831 9,225 2,854Profit/(loss)before income tax 252 1,037 (4,643) (3,264) (1,904) (3,505) (8,946) (2,164)Profit/(loss)after income tax (311) 161 (4,251) (3,729) (846) (2,793) (8,669) (2,190)Non-controllinginterest (225) (475) 58 (1,003) (123) (141) (535) -Loss for the period (536) 314 4,309 2,726 723 2,652 8,134 2,190Loss per share 0.00 0.00 0.04 0.02 0.01 0.02 0.17 0.05Balance sheetWorking capital 36,453 34,515 33,765 39,171 49,544 57,285 63,480 29,045Total assets 292,236 274,381 266,618 295,914 298,948 300,689 305,541 86,879Non currentliabilities 69,018 64,684 62,807 70,053 71,056 71,179 72,103 -Statement of cashflowsDeferred exploration anddevelopment costs -Romania 992 848 1,081 1,067 893 860 2,462 1,172Plant andequipment - Greece 1,599 568 1,298 2,506 2,453 1,582 - -Deferreddevelopmentcosts - Greece 999 476 1,510 439 891 - - ------------------ ------ ------ ------ ------ ------ ------ ------ ------ The breakdown of deferred exploration and development costs per mineral propertyfor the three- and six-month periods ended 30 June 2006 and 2005 is as follows: Six-month periods ended 30 June Three-month periods ended 30 June -------------------- --------------------(in thousands ofUS dollars) 2006 2005 2006 2005 $ (%) $ (%) $ (%) $ (%)---------------- ----------- ----------- ----------- -----------Romanian mineralpropertiesCertej 1,635 (89%) 1,280 (73%) 863 (87%) 595 (67%)Cainel 20 (1%) 343 (20%) 3 (1%) 241 (27%)Voia 145 (8%) 27 (1%) 103 (10%) 12 (1%)Baita-Craciunesti 40 (2%) 74 (4%) 23 (2%) 34 (4%)Bolcana - (-%) 28 (2%) - (-%) 11 (1%)---------------- ----------- ----------- ----------- ----------- 1,840 (100%) 1,752 (100%) 992 (100%) 893 (100%)---------------- ----------- ----------- ----------- -----------Greek mineralpropertiesStratoni - (-%) 256 (29%) - (-%) 256 (29%)Skouries 684 (46%) 402 (45%) 459 (46%) 402 (45%)Olympias 791 (54%) 233 (26%) 540 (54%) 233 (26%)---------------- ----------- ----------- ----------- ----------- 1,475 (100%) 891 (100%) 999 (100%) 891 (100%)---------------- ----------- ----------- ----------- -----------Total 3,315 (100%) 2,643 (100%) 1,991 (100%) 1,784 (100%)---------------- ----------- ----------- ----------- ----------- The Certej exploitation licence and the Baita-Craciunesti exploration licenceare held by the Company's 80%-owned subsidiary, Deva Gold S.A. ("Deva Gold"). Minvest S.A. (a Romanian state owned mining company), together with three private Romanian companies, hold the remaining 20% interest in Deva Gold and the Company holds the pre-emptive right to acquire such 20% interest. The Company is required to fund 100% of all costs related to the exploration and development of these properties. As a result, the Company is entitled to the refund of such costs (plus interest) out of future cash flows generated by Deva Gold, prior to any dividends being distributed to shareholders. The Voia and Cainel explorationlicences are held by the Company's wholly-owned subsidiary, European GoldfieldsDeva SRL. The Company recorded a profit (before tax) of $1.29 million for the six-monthperiod ended 30 June 2006, compared to a loss (before tax) of $5.41 million forthe same period of 2005. The Company incurred a net loss (after tax andnon-controlling interest) of $0.85 million ($0.01 per share) for the six-monthperiod ended 30 June 2006, compared to a net loss of $3.38 million ($0.03 per share) for the same period of 2005. The Company recorded a profit (before tax) of $0.25 million for the three-monthperiod ended 30 June 2006, compared to a loss (before tax) of $1.90 million forthe same period of 2005. The Company incurred a net loss (after tax andnon-controlling interest) of $0.54 million ($0.00 per share) for the three-monthperiod ended 30 June 2006, compared to a net loss of $0.72 million ($0.01 per share) for the same period of 2005. The following factors have contributed to this reduction in net loss and profit(before tax): • Hellas Gold commenced production at its Stratoni mine in September 2005. As a result, the Company recorded a gross profit of $8.63 million in the first half of 2006 and $4.33 million in Q2 2006, on revenues of $17.36 million in the first half of 2006 and $8.27 million in Q2 2006 for the sale of concentrates by Hellas Gold, compared to $0.06 for the same periods of 2005. Cost of sales of $8.73 million in the first half of 2006 and $3.94 million in Q2 2006 included non-recurring costs relating to the start-up of operations at Stratoni, fixed costs disproportionate to production output in a ramp-up phase, and amortisation and depletion expenses of $1.17 million in the first half of 2006 and $0.60 million in Q2 2006. • The Company's corporate administrative and overhead expenses have decreased significantly from $1.58 million in the first half of 2005 and $0.70 million in Q2 2005, to $1.00 million and $0.47 million, respectively, for the same periods of 2006, primarily as a result of the Company recharging a larger portion of its overhead costs to its operating subsidiaries, a portion of which is capitalised by such subsidiaries. • The Company recorded a non-cash equity-based compensation expense of $1.43 million in the first half of 2006 and $0.76 million in Q2 2006, compared to $0.32 million and $0.20 million, respectively, for the same periods of 2005. This increase is due to the larger cost recognised in the first half of 2006 related to outstanding restricted share units and share options during this period, compared to the same period of 2005. In the first half of 2005, there were no restricted share units and fewer share options outstanding which had not been fully expensed. In the first half of 2006, the Company continued a practice of recharging some of its equity-based compensation expense to its operating subsidiaries, a portion of which is capitalised by such subsidiaries. • Effective 1 October 2004, the Company changed its functional currency from the Canadian dollar to the United States dollar. Despite this, during the first half of 2005, the Company retained significant cash balances in Euro in order to meet a Euro subscription obligation in Hellas Gold in Q1 2005. Hellas Gold also retained significant cash balances in Euro in order to meet operating, administrative and overhead expenses. Consequently, the Company recorded a foreign exchange loss of $0.93 million in the first half of 2005 and a small gain of $0.07 million in Q2 2005. The loss resulted primarily from a strengthening of the United States dollar against the Euro as at 30 June 2005 compared to 31 December 2004. In contrast, the Company realised a foreign exchange gain of $0.22 million in the first half of 2006 and $0.20 million in Q2 2006, due in part to the weakening of the United States dollar against the Euro as at 30 June 2006 compared to 31 December 2005. During Q2 2006, the Company converted Canadian dollars received upon the exercise of share options into United States dollars, which also contributed to the foreign exchange gain in Q2 2006. • Hellas Gold's administrative and overhead expenses amounted to $1.80 million in the first half of 2006 and $1.06 million in Q2 2006, compared to $0.75 million and $0.14 million, respectively, for the same periods of 2005. Hellas Gold's administrative and overhead expenses are mostly attributable to operations related to the Stratoni mine and plant, and have increased moderately in the first half of 2006 compared to the same period of 2005 reflecting an increase in activity following the commencement of operations in September 2005. • Hellas Gold incurred an expense of $1.39 million in the first half of 2006 and $0.89 million in Q2 2006, compared to $2.21 million and $1.25 million, respectively, for the same periods of 2005, for ongoing water pumping and treatment at its non-operating mines of Olympias and Stratoni (Madem Lakkos), in compliance with Hellas Gold's commitment to the environment under its contract with the Greek State. • Hellas Gold incurred a non-recurring expense of $2.03 million in the first half of 2006 and $1.12 million in Q2 2006, compared to $Nil million for the same periods of 2005, for the maintenance of old adits and equipment at Stratoni. • The Company recorded a charge for income taxes of $1.44 million in the first half of 2006 and $0.56 million in Q2 2006, compared to a credit of $1.77 million and $1.06 million, respectively, for the same periods of 2005. The charge in 2006 has arisen due to the Company recording a profit (before tax) which led to a reduction in the future tax asset based on losses carried forward in Hellas Gold. The credit in 2005 had arisen due to the Company recognising a future tax asset for the losses carried forward in Hellas Gold. • The Company recorded a charge of $0.70 million in the first half of 2006 and $0.23 million in Q2 2006 relating to the non-controlling shareholder's interest in Hellas Gold's profit (after tax) for these periods, compared to a credit of $0.26 million and $0.12 million, respectively, for the same periods of 2005, relating to the non-controlling shareholder's interest in Hellas Gold's loss (after tax) for this period. Liquidity and capital resources As at 30 June 2006, the Company had cash and cash equivalents of $33.09 million,compared to$30.54 million as at 31 December 2005, and working capital of $36.45 million,compared to $33.77 million as at 31 December 2005. The increase in cash and cash equivalents as at 30 June 2006, compared to thebalances as at 31 December 2005, resulted primarily from operating profits ($4.54 million), proceeds received from exercise of share options ($2.45 million),the effects of foreign currency translation on cash ($1.0 million) and a netdecrease in accounts receivable vs accounts payable ($0.73 million), offset bycapital expenditure in Greece($2.17 million), deferred exploration and development costs in Romania ($1.84million), deferred development costs in Greece ($1.48 million), an increase ininventory ($0.64 million) and purchase of equipment($0.07 million). The following table sets forth the Company's contractual obligations includingpayments due for each of the next five years and thereafter: (in thousands of US dollars) Payments due by periodContractual Total Less than 1 1-3 years 4-5 years After 5 yearsobligations year ---------------- -------- ---------- --------- --------- ---------Operating lease (London office) 840 187 373 280 -Explorationlicence spendingcommitments(Voia, Romania) 1,345 - 1,345 - ----------------- -------- ---------- --------- --------- ---------Total contractualobligations 2,185 187 1,718 280 ----------------- -------- ---------- --------- --------- --------- For the six months ending 31 December 2006, the Company expects to spend a totalof (i) $4.57 million in capital expenditures to fund the development of itsStratoni projects (including exploration costs),(ii) $3.00 million in exploration and development costs for Greece ($1.60million) and Romania ($1.40 million), (iii) $4.00 million in Hellas Gold administrative and overhead expenses and other Hellas Gold non-operating expenses and(iv) $1.60 million in corporate administrative and overhead expenses. TheCompany expects to fund such costs from existing cash balances and operatingcash flow generated at Stratoni. Outstanding share data The following represents all equity shares outstanding and the number of commonshares into which all securities are convertible, exercisable or exchangeable: Common shares: 113,847,876Common share options: 3,730,999Restricted share units: 1,980,000Common shares (fully-diluted): 119,558,875 Preferred shares: Nil Outlook Greece - In September 2005, Hellas Gold resumed production at Stratoni followingthe award by the Greek State of all necessary environmental and mining permits.Production of ore is expected to reach170,000 tonnes by the end of 2006, steadily increasing to 400,000 tonnes perannum by year five. In January 2006, Hellas Gold submitted business plans to the Greek governmentfor its major gold and base metals projects of Skouries and Olympias. Thissubmission represents a significant milestone in obtaining the permits for theprojects. In March 2006, Hellas Gold received an official response from the Greek Ministryof Development (the "Ministry") on the business plans. The response states thatthe Ministry is in agreement with the principles stated in the business plans,and that the Ministry considers the business plans to be in the best interest ofthe Greek economy. With this response, the Ministry endorses Hellas Gold's holistic and phasedapproach to the development of the projects, with emphasis on achieving fullproduction at the Skouries gold-copper porphyry deposit as soon as possible, andthe phasing of the Olympias gold-lead-zinc-silver deposit. This approachminimises financial risk by the phased injection of capital. The principalrevenue stream in the early phases will be through the sale of concentrates. The response from the Ministry also has the benefit of providing a short-list ofthe technical matters on which the Ministry would like some furtherclarifications. A joint technical committee, with representatives from theMinistry, Hellas Gold and the Company, has been created to resolve these mattersin the context of Hellas Gold's ongoing work on a full environmental impactstudy, which is expected to be submitted to the Greek government in Q3 2006. Onapproval of the study, the environmental permits for Skouries and Olympias areexpected to be issued. Hellas Gold will then submit to the Greek government a final technical report onthe Skouries and Olympias projects, which will restate the principles of thebusiness plans and take into account any conditions detailed in theenvironmental permit. The mining permits are expected to be issued on approvalof the technical report by the Greek government. The Company also continues to look for new discoveries through focusedexploration programmes. Romania - The Company has completed all necessary Environmental ImpactAssessments (EIA Levels I and II) for the Certej project. The Company is now completing an Environmental Impact Study (EIS) and a feasibility study, in support of an application for mining permits expected to be submitted by end-2006. The Company is actively pursuing two viable development options for the Certejproject: the production and sale of gold-rich concentrates from Certej, and theproduction of gold dore on site using the Albion Process. Finally, the Company continues to conduct focused exploration programmes toexpand the resource base in Romania. Risks and uncertainties The risks and uncertainties affecting the Company, its subsidiaries and theirbusiness are discussed in the Company's Annual Information Form for the yearended 31 December 2005, filed on SEDAR at www.sedar.com. Director's shareholding On 11 August 2006, the Company granted for nil consideration 150,000 restrictedshare units ("RSUs") to Timothy Morgan-Wynne, the Company's newly appointedDirector and Chief Financial Officer, under the Company's Restricted Share UnitPlan. The RSUs are redeemable for 75,000 common shares of the Company on 31 May2007, and 75,000 common shares of the Company on 31 May 2008. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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