15th May 2006 07:04
European Goldfields Ltd15 May 2006 For Immediate Release 15 May 2006 RESULTS FOR Q1 2006 - FIRST PROFIT REPORTED PRODUCTION RAMPING-UP AT STRATONI RESERVES ANNOUNCED FOR CERTEJ PROJECT GREEK GOVERNMENT POSITIVE ON BUSINESS PLANS FOR SKOURIES & OLYMPIAS OFF-TAKE AGREEMENT SIGNED FOR OLYMPIAS CONCENTRATES European Goldfields Limited (AIM: EGU / TSX: EGU) ("European Goldfields" or the"Company") today reports its results for the first quarter to 31 March 2006.Highlights during 2006 are: Greece: • Hellas Gold recorded sales of US$9.08 million and gross profits of US$4.30 million in Q1 2006, from 4 shipments of Stratoni concentrates • Underground production at Stratoni ramping-up from 400 tonnes per day (tpd) in January to 610 tpd in April 2006 • Business plans submitted to the Greek government in January 2006, the first major step in applying for permits to develop the major projects of Skouries and Olympias • Positive response on business plans received from Greek government, endorsing Hellas Gold's holistic and phased approach to the development of the Skouries and Olympias projects • Off-take agreement signed for gold concentrates currently located on surface at Olympias Romania: • Reserves announced for Certej project, confirming that the project can produce a robust return at a gold price of $425/oz • Environmental Impact Assessments completed; final feasibility study underway for submission to the Romanian government by year end, in support of permit application Corporate: • European Goldfields records first profit of US$1.04 million (before tax) for Q1 2006; US$33.95 million in cash assets and financial instruments at 31 March 2006; funded through 2007 until the expected award of permits for Olympias, Skouries and Certej • Management team-building completed with appointments of Tim Morgan-Wynne as CFO and Neil Hepworth as VP Operations • Broadened shareholder base and improved share liquidity; appointed Williams de Broe and RBC Capital Markets as brokers Commenting on the results, David Reading, Chief Executive Officer of EuropeanGoldfields, said: "We are proud to report our first profit before tax in Q12006, and we look forward to increasing our profitability as productioncontinues to ramp-up at Stratoni. We are also encouraged that the Greekgovernment acknowledged the merits of our business plans and confirmed that thedevelopment of the Skouries and Olympias projects are in the best interest ofthe Greek economy. In Romania, we have now published reserves for the Certejproject and defined a clear roadmap to permitting and project development, withfinal feasibility studies well underway." GREECE Stratoni operations - During Q1 2006, 31,752 wet tonnes of ore were mined fromunderground, 40,333 dry tonnes of ore were milled at the Stratoni plant and9,884 tonnes of zinc and lead/silver concentrates were shipped and sold fortotal revenues of US$9.08 million, for which European Goldfields' 65%-ownedsubsidiary Hellas Gold S.A. ("Hellas Gold") reported a gross profit of US$4.30million. Ore production rates have steadily increased since the beginning of the year,from 400 tonnes per day (tpd) in January to 610 tpd in April. Ore production ison track to achieve 170,000 tonnes by year end, and is expected to increasesteadily thereafter up to a maximum of 400,000 tonnes per annum by year five.Optimum recoveries of above 90% are now being achieved by the Stratoni plant. In Q1 2006, the emphasis has been on rehabilitating and preparing sufficientmining faces to achieve the planned production target. In January, accesses tothe orebody were opened on six levels. Further cleanup and rehabilitation workwas carried out on the down ramp that has allowed opening of additional accesseson two additional levels. Work is also progressing in rehabilitating the 190mlevel access to provide exploration drilling access for the west extension ofthe orebody. The first quarter also saw a substantial decrease in the inherited voidinventory, with most of the backfilling of mined-out areas completed in thequarter using the coarse tailings from the milling process. To this end, a newbackfill pump was purchased and installed on the 240m level to allow efficienttight filling of the operating levels above 252m level. Cleaning and rehabilitation work at Madem Lakkos has continued to facilitatebackfill of the old workings, which will reduce future water pumping andtreatment costs and provide environmental benefits. The trials of a filter press for producing filter cake from the fine portion ofthe mill process tailings and water treatment residue has been shown to betechnically feasible and cost effective. The tender process is complete andHellas Gold should be able to begin dry stacking these fine tails by the fourthquarter of 2006. In the meantime, Hellas Gold continues to store the tailingsslurry and water treatment sludge in the Chevalier pond. Good progress has also been made on the new decline to the Mavres Petresorebody, which is now 155 metres in, and through the bad ground associated withthe footwall fault zone and the weathered ground at the portal. The decline isnot necessary for mining in 2006 but becomes critical for the future productionramp-up involving the deeper portions of the orebody, as well as providingbetter ventilation and potential exploration upside. Stratoni is a robust business with minimal capital investment due the extensiveexisting infrastructure and also has well-defined reserves over a six-year life.The project also has exciting exploration upside as the orebody is open in alldirections and the new decline is transgressing the zone between old, mined-outareas and the current reserve of the Mavres Petres orebody. The new decline has intersected lead and zinc sulphide mineralisation over atrue thickness of approximately 1.75 metres located some 1.5 kilometres to theeast and along strike from the Mavres Petres orebody. Significantly, thismineralisation occurs within the same marble unit as the existing reserve and,like the Mavres Petres orebody, is immediately adjacent to the Stratoni fault,indicating the potential for further zones of mineralisation to occur along the1.5 kilometre corridor formed by the marbles and the fault. This confirmsEuropean Goldfields' current geological model for extensions to the MavresPetres orebody. This highly prospective corridor will be drill-tested later in2006 by a drill programme conducted from the decline. Skouries & Olympias business plans - In January 2006, Hellas Gold submittedbusiness plans to the Greek State for its major gold and base metal projects inNorthern Greece. This submission represents a significant milestone in obtainingthe permits for the Skouries and Olympias projects. The business plans focus on a phased approach to the development of the projectswith emphasis on achieving full production at the Skouries gold-copper porphyrydeposit 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 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. This response was received by Hellas Gold within thetimeframe provided for in its contract with the Greek State. 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 European Goldfields, has been created to resolve thesematters in the context of Hellas Gold's ongoing work on a full environmentalimpact study, which is expected to be submitted to the Greek government in Q32006. On approval of the study, the environmental permits for Skouries andOlympias 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 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. Ongoing feasibility work on Skouries and Olympias includes: • The mine schedules and production plans, with sign-off from external consultants including SRK for Skouries • An Environmental Impact Study, carried out by the Greek consulting group Enveco. Sale of Olympias concentrates - In May 2006, Hellas Gold entered into anoff-take agreement with Shandong MIC BioGold Ltd (a subsidiary of MichelagoLimited of Australia (ASX: MIC)) for the initial sale of at least 18,000 wetmetric tonnes (wmt) of gold bearing pyrite concentrates currently located on thesurface at Olympias in Greece. The agreement also includes the possible sale ofan additional 100,000 dry metric tonnes of concentrates over a three-year periodfrom April 2007. Olympias benefits from an existing stockpile of gold concentrates representing areserve of about 258,000 tonnes grading 23.3 g/t gold, in addition tosubstantial underground reserves of gold, lead, zinc and silver. The monthly shipments of the initial 18,000 wmt of concentrates are expected tocommence in May 2006 and end in April 2007, and may be suspended if certainprofitability thresholds are not met. Concentrates are to be treated at ShandongMIC's Bacox process plant in China. The price payable for the concentrates will vary with the prevailing gold price.The agreement produces an attractive return for Hellas Gold at a gold price ofUS$500/oz. European Goldfields and Hellas Gold are currently pursuing other similaropportunities for the sale of the remaining tonnage of concentrates in theOlympias stockpile. GIS study underway - European Goldfields has undertaken to capture digitallyinto a geographical information system (GIS) all historical data on the licencesin northern Greece. This will comprise 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 willacquire and process new satellite imagery over the Greek licences. The GISdatabase and the satellite imagery will mainly be used to refine the locationand limits of existing targets along the known fault controlled corridors ofmarble hosted massive sulphides and northwest trending porphyry belt. The GISdatabase will also identify areas for further investigation by remote sensingmethods, in order to generate new targets of similar mineralisation styles toStratoni, Olympias and Skouries. ROMANIA Reserves announced for Certej project - In April 2006, European Goldfieldsannounced the conversion of resources into Canadian NI 43-101 compliant reservesfor its 80%-owned Certej project in the Southern Apuseni Mountains of Romania. The reserve estimation was carried out by independent consultants RSG Global PtyLtd ("RSG Global") and can be summarised as follows: +----------+---------+--------------+-----------+---------------+-------------+ |Reserve | Million | Average Gold | Million | Average Siver | Million | |Category | Tonnes | Grade (g/t) |Ounces Gold| Grade (g/t) |Ounces Silver| +----------+---------+--------------+-----------+---------------+-------------+ |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, and is based on the sale of gold rich concentrates. The estimation followsthe completion of extensive metallurgical testwork, an in-house pre-feasibilitystudy and subsequent pit optimisation and pit design work by RSG Global, whichincluded a geotechnical drilling programme designed by Golders Associates of theUK. These studies resulted in: • Confirmation that a flotation concentrate can be produced with high gold grades and recoveries • An open pit with a low strip ratio of 2.6:1 • The definition of sites for infrastructure and tailings disposal • A clear understanding of all work required to complete environmental studies and achieve all necessary permitting. It is envisaged that the project could mine and process 3.0 Mt per annum over atleast nine years. At the proposed production rates, this would yieldapproximately 249,000 tonnes of concentrate per annum with 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 ofcontained 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. On-site production of gold dore being investigated - European Goldfields is alsoactively reviewing other development options to progress the Certej projectforward, such as confirming a process route for producing gold dore on site. Of the available techniques, the Albion Process followed by cyanidation isconsidered the most promising. The Albion process is a combination of ultra-finegrinding and oxidatative leaching at atmospheric pressure. HydrometallurgyResearch Laboratories of Australia has completed Stages I and II of ametallurgical testwork programme utilising the Albion Process from samples offlotation concentrates produced from Certej ore. The results indicate that theconcentrate can be economically processed by the Albion Process to produce golddore on site, with recoveries of gold and silver averaging approximately 84% and93% respectively. European Goldfields expects to report on the results of a Stage III pilot plantscale continuous metallurgical testwork programme, and publish Canadian NI43-101 compliant reserves based on the Albion process later in Q2 2006. Final feasibility study underway - European Goldfields has completed thenecessary Environmental Impact Assessments (EIA Levels I and II) for the Certejproject. The next stage will be to complete an Environmental Impact Study (EIS)in order to progress to full feasibility study and permit application by yearend. ECOIND, a Romanian company with a well-proven track record in environmentalresearch and permitting procedures, have been employed to assist in thisprocess. Cepromin, a Romanian company, has been commissioned to assist inproducing the feasibility study and supporting documents. 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. The work will comprise a field visit and review of allexploration data. The objective of the work is to develop existing geologicalmodels and identify drill targets along extension zones to known mineralisationand possible blind targets. For further information please contact: European Goldfields: e-mail: [email protected] Reading, Chief Executive Officer website: www.egoldfields.comOffice: +44 (0)20 7408 9534 Buchanan Communications: e-mail: [email protected] Morse / Ben WilleyOffice: +44 (0)20 7466 5000Mobile: +44 (0)7802 875 227 The Sherbourne Group: e-mail: [email protected] WestOffice: +1 416 203 2200 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-MONTH PERIOD ENDED 31 MARCH 2006 The following discussion and analysis, prepared as at 15 May 2006, 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 unaudited consolidated financial statements for thethree-month periods ended 31 March 2006 and 2005 and accompanying 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 7.6 Moz gold, 65.8Moz silver, 0.7 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 and 10.35 Moz silver (80% attributable). The Company isnow completing a final feasibility study for submission to the Romaniangovernment by the end of 2006, in support of an application for environmentaland mining permits to develop the Certej project. Results of operations The Company's results of operations for the three-month period ended 31 March2006 were comprised primarily of activities related to the results of operationsof the Company's 65%-owned subsidiary Hellas Gold in Greece and the Company'sregional exploration programs in Romania. The Company currently incurs lossesand until significant revenues are generated, the Company will continue to doso. In September 2005, Hellas Gold commenced production at its Stratoni mine inGreece. The following table summarises operational results at Stratoni for thethree-month period ended 31 March 2006. Stratoni Mine (Greece) Three-month period ended 31 March 2006Inventory (start of period)Ore mined (wet tonnes) 10,963Zinc concentrate (tonnes) 95Lead/silver concentrate (tonnes) 1,268 ProductionOre mined (wet tonnes) 31,752 Ore milled (tonnes) 40,333 - Average grade: Zinc (%) 8.89 Lead (%) 7.28 Silver (g/t) 183.45 Zinc concentrate (tonnes) 6,222 - Containing: Zinc (tonnes) 3,229 Lead concentrate (tonnes) 3,662 - Containing: Lead (tonnes) 2,667 Silver (kg) 6,454 SalesZinc concentrate (tonnes) 5,283 - Containing payable: Zinc (tonnes)* 2,335 Lead concentrate (tonnes) 4,623 - Containing payable: Lead (tonnes)* 3,166 Silver (kg)* 7,855 Operating costs per tonne milled ($) 96 Operating costs per unit of payable: - Zinc ($) 744 - Lead ($) 496 - Silver ($) 130 Inventory (end of period)Ore mined (wet tonnes) 1,155Zinc concentrate (tonnes) 1,034Lead/silver concentrate (tonnes) 307 Financial information (inthousands of US dollars)Sales ($) 9.083Gross profit ($) 4,295Capital expenditure ($) 526Amortisation and depletion ($) 454 * Net of smelter deductions The Company's results of operations for the eight most recently completedquarters are summarised in the following table: (in thousands of 2006 2005 2005 2005 2005 2004 2004 2004US dollars, Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2except per shareamounts) $ $ $ $ $ $ $ $ Statement of loss and deficitSales 9.083 1,464 - 57 - - - -Cost of sales 4,788 1,367 - - - - - -Gross profit 4,295 97 - 57 - - - -Interest income 300 339 272 326 326 279 143 60Expenses 3,558 5,079 3,536 2,287 3,831 9,225 2,854 2,848Profit/(loss) 1,037 (4,643) (3,264) (1,904) (3,505) (8,946) (2,164) (3,554)before incometaxProfit/(loss) 161 (4,251) (3,729) (846) (2,793) (8,669) (2,190) (3,580)after income taxNon-controlling (475) 58 (1,003) (123) (141) (535) - -interestLoss for the 314 4,309 2,726 723 2,652 8,134 2,190 3,580periodLoss per share 0.00 0.04 0.02 0.01 0.02 0.17 0.05 0.09Balance sheetWorking capital 34,515 33,765 39,171 49,544 57,285 63,480 29,045 31,117Total assets 274,381 266,618 295,914 298,948 300,689 305,541 86,879 83,517Non current 64,684 62,807 70,053 71,056 71,179 72,103 - -liabilitiesStatement ofcash flowsDeferred 848 1,081 1,067 893 860 2,462 1,172 943exploration anddevelopmentcosts - RomaniaPlant and 568 1,298 2,506 2,453 1,582 - - -equipment -GreeceDeferred 478 1,510 439 891 - - - -developmentcosts - Greece The breakdown of deferred exploration and development costs per mineral propertyfor the three-month periods ended 31 March 2006 and 2005 is as follows: Three-month periods ended 31 March ----------- -----------(in thousands of US 2006 2005dollars) $ $--------------- ----------- -----------Romanian mineralpropertiesCertej 772 (91%) 685 (80%)Cainel 17 (2%) 102 (12%)Voia 42 (5%) 17 (2%)Baita-Craciunesti 17 (2%) 40 (5%)Bolcana - (-%) 16 (1%)--------------- ----------- ----------- 848 (100%) 860 (100%)--------------- ----------- -----------Greek mineralpropertiesStratoni - (-%) - (-%)Skouries 162 (34%) - (-%)Olympias 316 (66%) - (-%)--------------- ----------- ----------- 478 (100%) - (-%)--------------- ----------- ----------- Total 1,326 (100%) 860 (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 threeprivate Romanian companies, hold the remaining 20% interest in Deva Gold and theCompany holds the pre-emptive right to acquire such 20% interest. The Company isrequired to fund 100% of all costs related to the exploration and development ofthese properties. As a result, the Company is entitled to the refund of suchcosts (plus interest) out of future cash flows generated by Deva Gold, prior toany 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 first profit (before tax) of $1.04 million for thethree-month period ended 31 March 2006, compared to a loss (before tax) of $3.51million for the same period of 2005. The Company incurred a net loss (after taxand non-controlling interest) of $0.31 million ($0.00 per share) for thethree-month period ended 31 March 2006, compared to a net loss of $2.65 million($0.02 per share) for the same period of 2005. The following factors havecontributed to this reduction in net loss and first profit (before tax) in Q12006: • Hellas Gold commenced production at its Stratoni mine in September 2005. As a result, the Company recorded $4.30 million in gross profit on revenues of $9.08 million in Q1 2006 for the sale of concentrates by Hellas Gold, compared to $Nil for the same period of 2005. Cost of sales of $4.79 million 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 $0.45 million in amortisation and depletion expenses. • The Company's corporate administrative and overhead expenses have decreased significantly from $0.89 million in Q1 2005, to $0.53 million for the same period 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 $0.67 million in Q1 2006, compared to $0.13 million for the same period of 2005. This increase is due to the larger cost recognised in Q1 2006 related to outstanding restricted share units and share options during the quarter, compared to the same period of 2005. In Q1 2005, there were no restricted share units and fewer share options outstanding which had not been fully expensed. In Q1 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 Q1 2005, the Company retained significant cash balances in Euro in order to meet a Euro subscription obligation in Hellas Gold. Hellas Gold also retained significant cash balances in Euro in order to meet operating, admin istrative and overhead expenses. Consequently, the Company recorded a foreign exchange loss of $1.00 million in Q1 2005. The loss resulted primarily from a strengthening of the United States dollar against the Euro as at 31 March 2005 compared to 31 December 2004. In contrast, the Company realised a foreign exchange gain of $0.02 million Q1 2006. • In Q1 2006, Hellas Gold's administrative and overhead expenses amounted to $0.74 million, compared to $0.61 million for the same period 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 Q1 2006 compared to the same period of 2005 reflecting an increase in activity following the commencement of operations in September 2005. • In Q1 2006, Hellas Gold incurred an expense of $0.49 million, compared to $0.96 million for the same period 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. • In Q1 2006, Hellas Gold incurred a non-recurring expense of $0.90 million, compared to $Nil million for the same period of 2005, for the maintenance of old adits and equipment at Stratoni. • The Company recorded a charge for income taxes of $0.88 million in Q1 2006, compared to a credit of $0.71 million for the same period of 2005. The charge in Q1 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 Q1 2005 has arisen due to the Company recognising a future tax asset for the losses carried forward in Hellas Gold. • The Company recorded a charge of $0.48 million in Q1 2006 relating to the non-controlling shareholder's interest in Hellas Gold's profit (after tax) for this period, compared to a credit of $0.14 million for the same period 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 31 March 2006, the Company had cash and cash equivalents of $30.34million, compared to$30.54 million as at 31 December 2005, and working capital of $34.52 million,compared to $33.77 million as at 31 December 2005. The small decrease in cash and cash equivalents as at 31 March 2006, compared tothe balances as at31 December 2005, resulted primarily from a net increase in accounts receivablevs. accounts payable($1.90 million), deferred exploration and development costs in Romania ($0.85million), capital expenditure in Greece ($0.57 million), deferred developmentcosts in Greece ($0.48 million) and purchase of equipment ($0.04 million),offset by operating profits ($2.11 million), a decrease in inventory ($1.00million), interest earned ($0.30 million), the effects of foreign currencytranslation on cash ($0.17 million), and the proceeds received from the exerciseof share options ($0.06 million). 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 ||(in thousands of US dollars) |+----------------------+----------+------------+-----------+-----------+-----------+|Contractual | Total | Less than 1|1 - 3 years|4 - 5 years| After 5||obligations | | year| | | years|+----------------------+----------+------------+-----------+-----------+-----------+|Operating lease | 887 | 187 | 373 | 327 | - ||(London office) | | | | | |+----------------------+----------+------------+-----------+-----------+-----------+|Exploration licence | 1,415 | - | 1,415 | - | - ||spending commitments | | | | | ||(Voia, Romania) | | | | | |+----------------------+----------+------------+-----------+-----------+-----------+|Total contractual | 2,302 | 187 | 1,788 | 327 | - ||obligations | | | | | |+----------------------+----------+------------+-----------+-----------+-----------+ In 2006, the Company expects to spend a total of (i) $12.80 million in capitalexpenditures to fund the development of its projects of Stratoni ($11.05million), Olympias ($1.75 million), Skouries ($Nil) and Certej ($Nil), (ii)$6.63 million in exploration and development costs for Greece ($4.05 million)and Romania($2.58 million), and (iii) $3.39 million on corporate administrative andoverhead expenses. The Company expects to fund such costs from existing cashbalances and operating cash 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: 3,145,999Restricted share units: 1,650,000Common shares (fully-diluted): 118,643,875 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 necessaryenvironmental and mining permits to develop the projects. In April 2006, the Company announced that Hellas Gold had received an officialresponse from the Greek Ministry of Development (the "Ministry") on the businessplans. The response states that the Ministry is in agreement with the principlesstated in the business plans, and that the Ministry considers the business plansto be in the best interest of the 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. Hellas Gold is now focused on completing a full environmental impact study,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 in the environmental permit.The mining permits are expected to be issued on approval of the technical reportby the Greek government. The Company also continues to look for new discoveries through focusedexploration programmes. Romania - In April 2006, the Company announced the conversion of resources intoCanadian National Instrument 43-101 compliant reserves for its 80%-owned Certejproject, underpinning the value of the project. Studies confirm that a gold/silver flotation concentrate can be produced with high grades and recoveries. In addition, the Company is pursuing a metallurgical testwork programmeinvestigating the feasibility of producing gold dore on site by a cost effectiveprocess design. Environmental Impact Assessments (EIA Levels I and II) were completed inDecember 2005. The next stage will be to complete an Environmental Impact Study(EIS) in order to progress to full feasibility study by the end of 2006, permitapplication and project development. 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. Block admission application A block admission application has been made for up to 16,346,230 common shareswithout par value in the Company to be admitted to trading on the AIM Market ofLondon Stock Exchange plc. The block admission application is in respect ofshares that may be issued pursuant to the exercise of options under theCompany's Share Option Plan and the vesting of restricted share units under theCompany's Restricted Share Unit Plan. The block admission is expected to becomeeffective on 16 May 2006. Documents sent to shareholders Copies of the Company's Annual Report, Management's Discussion and Analysis andConsolidated Financial Statements for the year ended 31 December 2005, andcopies of the Notice of Meeting and Management Proxy Circular for the AnnualMeeting of shareholders of the Company to be held on 15 May 2006 have been sentto shareholders and filed on SEDAR at www.sedar.com. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
EGU.L