14th Nov 2006 07:04
European Goldfields Ltd14 November 2006 For Immediate Release 14 November 2006 EUROPEAN GOLDFIELDS LIMITED RESULTS FOR Q3 2006 FIRST NET EARNINGS REPORTED SALES UP 84% OVER Q2 2006 SKOURIES FEASIBILITY NEARS COMPLETION 13 November 2006 - European Goldfields Limited (AIM: EGU / TSX: EGU) ("EuropeanGoldfields" or the "Company") today reports its results for the third quarterended 30 September 2006. Highlights since 30 June 2006 are: Financial: • Sales of US$32.6m in first nine months of 2006, compared to nil in 2005; Sales up 84% in Q3 over Q2 2006 • Profit (before tax) of $5.4m for first nine months of 2006, compared with a loss of $8.7m in 2005 • Operating cash flow increasing to $10.4m in first nine months of 2006, up $17.0m over 2005 • Net earnings reported for the first time; $1.5m for Q3 2006 • Working capital of $39.7m at 30 September 2006; funded beyond permitting of new projects Greece: • Stratoni shipments double in Q3 vs. Q2 2006, reflecting continued ramp-up in operations • First shipments of Olympias gold concentrates completed; further agreements signed • Extension drilling starts at Stratoni, with the aim of increasing life of mine • Skouries feasibility study nears completion • Mining schedule for Phase 1 of Olympias completed Romania: • Urbanisation Certificate received for Certej, first milestone in the permitting process • Certej feasibility study on track for submission to Romanian government in Q1 2007 • Licence agreements signed for the Albion Process Technology; 92% gold recovery achieved on composite sample Commenting on the results, David Reading, Chief Executive Officer of EuropeanGoldfields, said: "We are delighted to be reporting net earnings for the firsttime in the company's history. This is a reflection of growing revenues from ourtwo profit centres, the Stratoni mine and the sale of Olympias goldconcentrates. Future growth will also come from our other three major gold andbase metals projects. These are well on track with feasibility work nearcompletion and permitting progressing as planned. With rapidly increasing cash flows and one of the largest proven gold and basemetal reserves in Europe, we remain on track to become a leading mid-tierproducer over the next few years." Conference Call & Webcast - 14 November 2006 at 9am (EST) / 2pm (GMT)European Goldfields will host a conference call on Tuesday, 14 November 2006 at9:00 a.m. ET / 2:00 pm (London, UK time) to update investors and analysts on itsresults for Q3 2006. Participants may join the call by dialing one of the threefollowing numbers, approximately 10 minutes before the start of the call.From North America (toll free): 1-866 400 3310From the U.K. (toll free): 0808 234 7435International (toll free): 1-800 722 66726A live audio webcast of the call will be available on http://viavid.net/dce.aspx?sid=000037BB. SELECTED FINANCIAL DATA Three months ended 30 September Nine months ended 30 September -------------------- -------------------- (in thousands of 2006 2005 2006 2005US dollars,except per share $ $ $ $amounts) ----------- ----------- ----------- --------------------------Statement ofloss anddeficitSales 15,211 - 32,568 57Gross profit 7,958 - 16,583 57Profit/(loss) 4,102 (3,264) 5,392 (8,673)before incometaxProfit/(loss) 2,984 (3,729) 2,835 (7,368)after income taxNon-controlling (1,509) 1,003 (2,209) 1,267interestProfit/(loss) 1,475 (2,726) 626 (6,101)for the periodEarnings/(loss) 0.01 (0.02) 0.01 (0.05)per share ----------- ----------- ----------- -------------------------- (in thousands of US dollars) 30 September 31 December 2006 2005 $ $ ------------------ ------------ -------------Balance sheetWorking capital 39,666 33,765Total assets 294,719 266,618------------------ ------------ ------------- European Goldfields' unaudited interim consolidated financial statements andmanagement's discussion and analysis for the three- and nine-month periods ended30 September 2006 and 2005 are filed on SEDAR at www.sedar.com. STRATONI OPERATIONS (GREECE) Shipments double in Q3 2006 vs. Q2 2006 - European Goldfields' 65%-ownedsubsidiary Hellas Gold completed six shipments of concentrates from Stratoni inQ3 2006, amounting to 11,130 dry metric tonnes (dmt) of zinc concentrates and3,696 dmt of lead/silver concentrates. Hellas Gold also completed five shipmentsof gold concentrates from an existing stockpile at Olympias, amounting toapproximately 6,500 wet metric tonnes (wmt) of gold concentrates. This generatedtotal revenues of US$15.21 million in Q3 2006 for which Hellas Gold recorded agross profit of US$7.96 million. This compares favorably to three shipments in Q2 2006 amounting to approximately5,513 dmt of zinc concentrates and 2,337 dmt of lead/silver concentrates. As aresult, Hellas Gold reported a significant increase in revenues and gross profitin Q3 2006 compared to Q2 2006. In the first nine months of 2006, Hellas Goldrecorded a gross profit of US$16.58 million on sales of US$32.57 million. Hellas Gold is completely un-hedged and fully exposed to metal prices under itsoff-take agreements. Production continues to ramp up in 2006 - In Q3 2006, 49,652 wmt of ore weremined from underground and 56,769 dmt of ore were milled at the Stratoni plant.During the first nine months of 2006, 129,370 wmt of ore were mined fromunderground and 132,912 dmt of ore were milled at the Stratoni plant. Ore production rates have steadily increased since the beginning of the year,from 400 tonnes per day (tpd) in January to 880 tpd in September. Ore productionis on track to achieve the anticipated 170,000 tonnes by the end of 2006, and isexpected to increase steadily thereafter up to a maximum of 400,000 tonnes perannum by year five. At the end of Q3 2006, Hellas Gold had already achievedalmost 80% of its full year production target for 2006, despite the mine beingin a ramp-up phase during the first nine months of the year. The successful ramp-up in production to date is a result of extensiverefurbishment of mine infrastructure undertaken in 2006. This included therefurbishment and re-equipping of mine workings and equipment, installation ofkey items such as a backfill pump to ensure tight fill in the upper levels, andbackfilling a large void inventory to provide working faces. Rehabilitation workat the Stratoni mill was also essentially complete by Q3 2006. Hellas Gold has also started an improved programme of detailed grade control inQ3 2006. This has already increased the understanding of grade distributionwithin the orebody and should improve mining efficiency and plant recovery overtime. Ongoing investment in the plant includes new pumps and commissioning of thealready installed on-stream analyser for improved recovery. Development underway for continued production ramp-up in 2007 - A ramp to accessthe upper parts of the mine has been commenced, along with infrastructure toconnect the upper part of the mine with existing ore bins to improve orehandling and ventilation. This infrastructure will provide access to new workingends in the upper part of the mine to ensure the ramp-up in production continuesin 2007. Significant progress has also been made on the new decline to the Mavres Petresorebody, which is now approximately 800 metres in and advancing at over 5m perday on average. The new decline is not necessary for mining in 2007 but becomescritical for the future production ramp-up involving the deeper portions of theorebody, as well as providing better ventilation. Tailings strategy outlined - In order to ensure tailings storage capacity forthe life of mine, a global strategy for the management of tailings has beendeveloped by Hellas Gold. Additional tailings storage space has been created byremoving coarse material from existing storage facilities. This will be used tobackfill old workings. Dried fine material has also been moved from the existingtailings ponds and following successful trials, a filter press has been boughtand is expected to be commissioned by the end of 2006. The filter press will beused for processing fine tailings and water treatment sludge and will allow themaximum utilisation of the space created at the existing facility. Coarsetailings from production will be used for backfill of current workings. Water management programme adopted - To reduce future water pumping andtreatment costs, Hellas Gold commenced backfilling of the old Madem Lakkos mineworkings. A total of 13,000m3 of void has been filled so far. In addition, asecond water treatment plant at the Stratoni mine site will be commissioned in2007 to improve efficiency and provide capacity for extreme rainfall events. Thenew plant will include a second filter press to allow dry storage of treatmentresidue as filter cake. Extension drilling starts at Stratoni - In October 2006, European Goldfieldsbegan an exploration drilling programme at Stratoni. Stratoni already haswell-defined reserves over a six-year life of mine. Six areas targeted by thedrilling are obvious extensions to known mineralisation, in addition to moreconceptual targets between the two main Stratoni deposits. The two targets being investigated first are known extensions to previouslymined areas of the Stratoni (Madem Lakkos) deposit, where production grades of 9to 10.7% lead, 9 to 9.6% zinc and 160 to 185.3 g/t silver are recorded. Theprogramme is aimed at drilling out resources in these areas of known economicmineralisation. A further four target areas are formed by the inferred resources extending fromthe Stratoni (Mavres Petres) deposit. The drilling programme is designed toupgrade these inferred resources to the measured and indicated categories. Theseinferred resources are extrapolations from the known reserves and comprise some375,000 tonnes grading 7.5% lead, 9.5% zinc and 160 g/t silver. Additional drilling will also be conducted along the 1.5 kilometre zone betweenthe existing reserve and mined-out areas at Madem Lakkos. The new declinecurrently being excavated to access the base of the existing Stratoni reserveprovides excellent access for drilling of this highly prospective corridor. Thedecline will also enable immediate access for mining of any new discoveries. The drilling programme aims to significantly increase reserves and life of mine.Initial drilling results are expected by year end. The existing environmentaland mining permits for Stratoni will allow Hellas Gold to fully exploit any newdiscoveries resulting from this drilling programme. SKOURIES & OLYMPIAS PROJECTS (GREECE) First shipments of Olympias gold concentrates completed- Olympias benefits froman existing stockpile of gold concentrates representing a reserve ofapproximately 258,000 tonnes grading 23.3 g/t gold (containing 193,000 oz ofgold), in addition to substantial underground reserves of gold, lead, zinc andsilver. In Q3 2006, Hellas Gold completed an initial five shipments of gold concentratesfrom the Olympias stockpile, amounting to approximately 6,500 wmt of goldconcentrates. In May 2006, Hellas Gold entered into its first off-take agreement with ShandongMIC BioGold Ltd(a subsidiary of Michelago Limited of Australia) for the sale of an initial18,000 wet metric tonnes (wmt) of Olympias gold concentrates. The agreement withMIC Biogold also includes the possible sale of an additional 100,000 tonnes overa three-year period from April 2007. The monthly shipments of the initial 18,000wmt of concentrates commenced in July 2006 and are expected to end in April2007. The price payable for the concentrates will vary with the prevailing goldprice. The agreement produces an attractive return for Hellas Gold at a goldprice above $500/oz. In October 2006, Hellas Gold also entered into a second off-take agreement withMRI Trading AG of Switzerland for the sale of an additional 18,000 wmt ofconcentrates. This order by MRI Trading follows the success of an initial trialshipment of 3,000 wmt of concentrates announced in July 2006. MRI Trading alsohas the option to increase its order by a further 12,000 wmt, exercisable by 31December 2006. Shipments are scheduled to be completed by October 2007. European Goldfields and Hellas Gold are currently in advanced stages ofnegotiations for the sale of the remaining tonnage of concentrates in theOlympias stockpile. Skouries feasibility study nears completion -Hellas Gold is finalising variousstudies for input in a final bankable feasibility study for Skouries. Thesestudies, which are expected to be completed in Q1 2007, include: • A cost and definition study for the process plant and associated infrastructure, undertaken by Aker Kvaerner Engineering Services • A cost and definition study for underground mechanical and electrical utilities, undertaken by Scott Wilson Mining • The design of the tailings management facility (TMF), undertaken by Golder Associates • An Environmental Impact Study, carried out by the Greek consulting group Enveco • A study of hydrogeology and creek boundaries by the Greek Institute of Geology & Mineral Exploration (IGME), to be used in the development of a new hydrogeological model In addition, all mining studies have now been completed and confirm thatSkouries will be a 8M tonnes per annum (tpa) operation with a low strip open pit(0.6:1) of at least six years, followed by underground mining at 7Mtpa. Thiswill produce annually some 40,000t of copper and 200,000 oz of gold over a21-year mine life. This production rate is shown to be sustainable based on thedetailed mine design carried out by SRK Consulting and benchmarking with othercomparable mines. The metallurgy at Skouries is straight-forward. Approximately 30% of gold willbe recovered by a gravity circuit to produce dore on site. A high-qualitysaleable copper/gold concentrate will also be produced by conventional methods.Extensive testwork completed by Lakefield Research and other consultants hasshown average recoveries of 84% gold and 91% copper can be achieved. Concentrategrades of at least 26% copper and averaging 27g/t gold are expected. Golder Associates have carried out a pre-feasibility level study whichincorporates the latest paste production technology in a phased TMF that willminimise land take and embankment height and provides increased stability. Pastetailings also allows a greater proportion of the process water to be collectedand recycled at the process plant, reducing pumping costs and the quantity ofmake-up water needed. The study shows that the paste tailings are inert with lowpermeability. The use of paste tailings and a phased TMF also allows sequentialrehabilitation of the tailings management facility to minimise active tailingsareas. In July 2006, European Goldfields announced a 13% increase in reserve tonnes forSkouries. This increase 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 at a gold price of $425/oz and acopper price of $1.1/lb. Mining schedule for Phase 1 of Olympias completed - Development at Olympias willprogress in two phases to allow refurbishment and construction of infrastructureand the subsequent construction of new gold processing facilities at Stratoni.This staged approach also allows the phasing of capital investment. Hellas Gold has recently completed a mining schedule for Phase 1 whichprioritises underground mining around the existing shaft and otherinfrastructure, thereby minimising capital investment. The mining scheduleindicates that ore will be extracted at a rate progressing between 200,000 and400,000 tonnes per annum during Phase 1, expected to commence in 2008. Revenueduring Phase 1 will be generated from the sale of lead/silver, zinc and goldpyrite/arsenopyrite concentrates. Twenty exploration targets identified - Hellas Gold holds 317 km(2) of highlyprospective exploration licences in northern Greece. Recent work by EuropeanGoldfields has highlighted a total of twenty exploration targets, including sixadvance targets and extensions to known deposits, seven targets of knownmineralisation for follow-up work and seven conceptual targets. The geologicalcontext of the targets has been identified and a model for the emplacement ofknown mineralisation has now been developed. The model indicates that there are more than 20 km of structural corridors thathave acted as mineralising pathways with marble hosted polymetallic massivesulphide mineralisation, including the Stratoni and Olympias deposits. The modelalso identifies a 10 km intrusive belt which hosts the Skouries copper/goldporphyry. A phased exploration programme is planned which will include drilling ofadvanced targets. Further targets will be generated from a focused programme ofremote sensing and ground investigation along the structural corridorsidentified in the geological model. CERTEJ PROJECT (ROMANIA) In Romania, European Goldfields has made significant progress on its 80%-ownedCertej project by receiving an Urbanisation Certificate, the first milestone inthe permitting process, and entering into Licence Agreements securing the AlbionProcess Technology. Urbanisation Certificate received for Certej - In September 2007, EuropeanGoldfields announced that the Hunedoara County Council has issued a GeneralUrbanisation Certificate for the company's 80%-owned Certej project in Romania.The certificate confirms the designation of Certej as an industrial mining areaand confirms local community support for the project. This important milestoneis the first official step in the permitting process for Certej. Feasibility study on track for submission to Romanian government - EuropeanGoldfields has recently completed all necessary Environmental Impact Assessments(Levels I and II) for the Certej project, and is now actively conducting variousadditional studies in support of its permit application, including: • An Environmental Impact Study (EIS), to be completed in Q1 2007, 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 January2006 • A Romanian Feasibility Study (RFS), to be submitted to the government together with the EIS European Goldfields made significant progress on the RFS in Q3 2006, includingcompletion of geotechnical drilling and the studies on mineral resources,mining, metallurgy and tailings design. The RFS will provide the majority oftechnical analysis for a bankable feasibility study to be produced in H1 2007for project financing. European Goldfields already holds a mining permit for Certej, which is currentlybeing exploited in a small scale by the company's partner in Romania. In Q12007, European Goldfields plans to submit the RFS and EIS as part of itsapplication 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 Q3 2007 following a standard public consultation process with the localcommunity. Customary construction and public utility permits would follow laterin 2007 when the detailed engineering design has been completed for the siteplant. Licence agreements signed for Albion process - In October 2006, EuropeanGoldfields entered into Licence Agreements securing the Albion ProcessTechnology for its 80%-owned Certej project in Romania. The Licence Agreementswere entered into with Xstrata Queensland Limited and Highlands Frieda Limited,the co-owners of the technology. 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 is expected to involve the mining and processing of 3.0 Mt per annumover at least nine years. This would yield approximately 275,000 tonnes ofconcentrate per annum with high grades ranging realistically between 17 - 22 g/tgold and 85 - 165 g/t silver (depending on the source of the ore in thedeposit), with a flotation gold recovery of approximately 88%. This translatesinto an annual production of approximately 170,000 oz of contained gold in theconcentrate. Using the Albion Process to produce gold dore on site is expected tosignificantly increase project profitability and returns. Recent results usingthe Albion Process suggest recoveries from concentrates of approximately 96% forgold (92% on a composite sample) and 92% for silver. Generative study initiated - A generative study over European Goldfields'licence areas in Romania has identified four exploration targets near Certej.The study has highlighted the importance of the overall structural framework andintrusives for the channeling, concentration and trapping of mineralisation.Work by an internationally renowned consultant has clarified the model which nowidentifies the main pathways for mineralising fluids and linkage structuresbetween the main ore zones at Certej. The linkage structures have been targetedfor future drilling. Systematic investigation of these targets including drilling, metallurgicaltestwork and resource definition is aimed at providing additional feed to extendthe mine life of the Certej project and if possible provide higher grade feed toadd additional value in the early years of the project. 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] Morse / Ben WilleyOffice: +44 (0)20 7466 5000 Renmark Financial Communication: website: www.renmarkfinancial.comTina Cameron 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 Qualified Person under Canadian NationalInstrument 43-101 responsible for reviewing the disclosure of resource andreserve estimates quoted in this news release. Forward-looking statements Certain statements and information contained in this document, including anyinformation as to the Company's future financial or operating performance andother statements that express management's expectations or estimates of futureperformance, constitute forward-looking information under provisions of Canadianprovincial securities laws. When used in this document, the words "anticipate","expect", "will", "intend", "estimate", "forecast", "planned" and similarexpressions are intended to identify forward-looking statements or information.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 price of gold, base metals or certain othercommodities (such as fuel and electricity) and currencies; uncertainty ofmineral reserves, resources, grades and recovery estimates; uncertainty offuture production, capital expenditures and other costs; currency fluctuations;financing and additional capital requirements; the successful and timelypermitting of the Company's Skouries, Olympias and Certej projects; legislative,political, social or economic developments in the jurisdictions in which theCompany carries on business; operating or technical difficulties in connectionwith mining or development activities; the speculative nature of gold and basemetals exploration and development, including the risks of diminishingquantities or grades of reserves; the risks normally involved in theexploration, development and mining business; and risks associated with internalcontrol over financial reporting. For a more detailed discussion of such risksand material factors or assumptions underlying these forward-looking statements,see the Company's Annual Information Form for the year ended 31 December 2005,filed on SEDAR at www.sedar.com. The Company does not intend, and does notassume any obligation, to update or revise any forward-looking statementswhether as a result of new information, future events or otherwise, except asrequired by law. MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE THREE- AND NINE-MONTH PERIODS ENDED 30 SEPTEMBER 2006 The following discussion and analysis, prepared as at 13 November 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- and nine-month periods ended 30 September 2006 and2005 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, alldollar amounts in the following discussion and analysis and the ConsolidatedFinancial Statements are stated in United States dollars. 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 South-East Europe. 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 the three major gold and base metal deposits of Stratoni,Skouries and Olympias in Northern Greece. Hellas Gold commenced production atStratoni in September 2005 and selling an existing stockpile of Olympias goldconcentrates in July 2006. Hellas Gold is applying for permits to develop theSkouries and Olympias projects. Romania - The Company owns 80% of the Certej gold/silver project in Romania.European Goldfields is completing a feasibility study for submission to theRomanian government in Q1 2007, in support of a permit application to developthe project. MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE THREE- AND NINE-MONTH PERIODS ENDED 30 SEPTEMBER 2006 The following discussion and analysis, prepared as at 13 November 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- and nine-month periods ended 30 September 2006 and2005 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, alldollar amounts in the following discussion and analysis and the ConsolidatedFinancial Statements are stated in United States dollars. 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 South-East Europe. 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 the three major gold and base metal deposits of Stratoni,Skouries and Olympias in Northern Greece. Hellas Gold commenced production atStratoni in September 2005 and selling an existing stockpile of Olympias goldconcentrates in July 2006. Hellas Gold is applying for permits to develop theSkouries and Olympias projects. Romania - The Company owns 80% of the Certej gold/silver project in Romania.European Goldfields is completing a feasibility study for submission to theRomanian government in Q1 2007, in support of a permit application to developthe project. Results of operations The Company's results of operations for the three- and nine-month periods ended30 September 2006 were comprised primarily of activities related to the resultsof operations of the Company's 65%-owned subsidiary Hellas Gold in Greece andthe Company's exploration and development program in Romania. In September 2005, Hellas Gold commenced production at its Stratoni mine inGreece. The following table summarises operational results at Stratoni for thethree most recently completed quarters. Stratoni Mine (Greece) --------------------------------------------------- Q1 2006 Q2 2006 Q3 2006 Total ------------------ ----------- ------------- -------- ---------Inventory (start of period)Ore mined (wet tonnes) 10,963 1,155 12,326 -Zinc concentrate (tonnes) 95 1,034 1,562 -Lead/silver concentrate 1,268 308 674 -(tonnes) ProductionOre mined (wet tonnes) 31,752 47,966 49,652 129,370 Ore milled (tonnes) 40,333 35,810 56,769 132,912- Average grade: Zinc (%) 8.89 9.45 10.54 9.75Lead (%) 7.28 5.83 5.78 6.25Silver (g/t) 183.45 146.09 142.29 155.80 Zinc concentrate (tonnes) 6,222 6,041 10,768 23,031- Containing: Zinc (tonnes) 3,229 3,098 5,468 11,795 Lead concentrate (tonnes) 3,662 2,703 4,368 10,733- Containing: Lead (tonnes) 2,667 1,881 2,997 7,545Silver (oz) 207,496 141,809 227,817 577,122 SalesZinc concentrate (tonnes) 5,283 5,513 11,130 21,926- Containing payable: Zinc 2,335 2,320 4,702 9,357(tonnes)* Lead concentrate (tonnes) 4,623 2,337 3,696 10,656- Containing payable: Lead 3,166 1,554 2,418 7,138(tonnes)*Silver (oz)* 252,559 121,350 189,349 563,258 Operating costs per tonne 96 130 112 112milled ($)Operating costs per unit ofpayable:- Zinc ($) 744 937 999 920- Lead ($) 496 367 330 412- Silver ($) 4.06 3.99 3.50 3.85 Inventory (end of period)Ore mined (wet tonnes) 1,155 12,326 3,618 -Zinc concentrate (tonnes) 1,034 1,562 1,200 -Lead/silver concentrate 308 674 1,345 -(tonnes) Financial information(in thousands of US dollars) Sales ($)** 9,083 8,274 15,211 32,568Gross profit ($)** 4,295 4,330 7,958 16,583Capital expenditure ($) 526 1,351 1,487 3,364Amortisation and depletion 456 942 796 2,194($) ---------- ----------- --------- -----------------------------* Net of smelter deductions** Includes the sale of approximately 6,500 wmt of gold concentrates from anexisting stockpile at Olympias. The Company's results of operations for the eight most recently completedquarters are summarised in the following table:------------------ ------ ------ ------ ------ ------ ------ ------ ------(in thousandsof US dollars, 2006 2006 2006 2005 2005 2005 2005 2004except per share Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4amounts) $ $ $ $ $ $ $ $------------------ ------ ------ ------ ------ ------ ------ ------ ------Statement of lossand deficitSales 15,211 8,274 9,083 1,464 - 57 - -Cost of sales 7,253 3,944 4,788 1,367 - - - -Gross profit 7,958 4,330 4,295 97 - 57 - -Interestincome 485 767 300 339 272 326 326 279Expenses 643 4,345 3,558 5,079 3,536 2,287 3,831 9,225Profit/(loss)before incometax 4,102 252 1,037 (4,643) (3,264) (1,904) (3,505) (8,946)Profit/(loss)after incometax 2,984 (311) 161 (4,251) (3,729) (846) (2,793) (8,669)Non-controlling interest (1,509) (225) (475) 58 (1,003) (123) (141) (535)Profit/(loss)for the period 1,475 (536) (314) (4,309) (2,726) (723) (2,652) (8,134)Earnings/(loss) per share 0.01 0.00 0.00 (0.04) (0.02) (0.01) (0.02) (0.17)Balance sheet (endof period)Workingcapital 39,666 36,453 34,515 33,765 39,171 49,544 57,285 63,480Total assets 294,719 292,236 274,381 266,618 295,914 298,948 300,689 305,541Non currentliabilities 70,080 69,018 64,684 62,807 70,053 71,056 71,179 72,103Statement of cashflowsDeferredexplorationanddevelopmentcosts -Romania 598 992 848 1,081 1,067 893 860 2,462Plant andequipment -Greece 1,268 1,599 568 1,298 2,506 2,453 1,582 -Deferreddevelopmentcosts - Greece 462 999 476 1,510 439 891 - ----------------- ------ ------ ------ ------ ------ ------ ------ ------ The breakdown of deferred exploration and development costs per mineral propertyfor the three- and nine-month periods ended 30 September 2006 and 2005 is asfollows: Nine months ended 30 September Three months ended 30 September (in thousands ofUS dollars) 2006 2005 2006 2005 $ (%) $ (%) $ (%) $ (%) ---------------- ----------- ----------- ----------- -----------Romanian mineralpropertiesCertej 2,131 (87%) 1,655 (59%) 495 (83%) 379 (35%)Cainel 21 (1%) 802 (28%) 2 (1%) 459 (43%)Voia 217 (9%) 46 (2%) 72 (11%) 19 (2%)Baita-Craciunesti 69 (3%) 255 (9%) 29 (5%) 181 (17%)Bolcana - (-%) 59 (2%) - (-%) 30 (3%)---------------- ----------- ----------- ----------- ----------- 2,438 (100%) 2,817 (100%) 598 (100%) 1,068 (100%) ---------------- ----------- ----------- ----------- -----------Greek mineralpropertiesStratoni - (-%) 410 (31%) - (-%) 154 (35%)Skouries 1,140 (59%) 569 (43%) 273 (59%) 167 (38%)Olympias 797 (41%) 351 (26%) 189 (41%) 118 (27%)---------------- ----------- ----------- ----------- ----------- 1,937 (100%) 1,330 (100%) 462 (100%) 439 (100%) ---------------- ----------- ----------- ----------- ----------- Total 4,375 (100%) 4,147 (100%) 1,060 (100%) 1,507 (100%) ---------------- ----------- ----------- ----------- ----------- The Certej exploitation licence and the Baita-Craciunesti exploration licenceare held by the Company's80%-owned subsidiary, Deva Gold S.A. ("Deva Gold"). Minvest S.A. (a Romanianstate owned mining company), together with three private Romanian companies,hold the remaining 20% interest in Deva Gold and the Company holds thepre-emptive right to acquire such 20% interest. The Company is required to fund100% of all costs related to the exploration and development of theseproperties. 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 anydividends 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 $5.39 million for the nine-monthperiod ended30 September 2006, compared to a loss (before tax) of $8.67 million for the sameperiod of 2005.The Company recorded a net profit (after tax and non-controlling interest) of$0.63 million ($0.01 per share) for the nine-month period ended 30 September2006, compared to a net loss of $6.10 million ($0.05 per share) for the sameperiod of 2005. The Company recorded a profit (before tax) of $4.10 million for the three-monthperiod ended30 September 2006, compared to a loss (before tax) of $3.26 million for the sameperiod of 2005.The Company recorded a net profit (after tax and non-controlling interest) of$1.48 million ($0.01 per share) for the three-month period ended 30 September2006, compared to a net loss of $2.73 million ($0.02 per share) for the sameperiod of 2005. The following factors have contributed to the Company recording a profit for thethree- and nine-month periods ended 30 September 2006, compared to a loss forthe same periods of 2005: • Hellas Gold commenced production at its Stratoni mine in September 2005 and selling an existing stockpile of gold concentrates located at Olympias in July 2006. As a result, the Company recorded a gross profit of $16.58 million in the first nine months of 2006 and $7.96 million in Q3 2006, on revenues of $32.57 million in the first nine months of 2006 and $15.21 million in Q3 2006 for the sale of concentrates by Hellas Gold, compared to $0.06 million for the same periods of 2005. Cost of sales of $15.99 million in the first nine months of 2006 and $7.25 million in Q3 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 $1.92 million in the first nine months of 2006 and $0.75 million in Q3 2006. • The Company's corporate administrative and overhead expenses have decreased from $2.09 million in the first nine months of 2005, to $1.65 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. Corporate administrative and overhead expenses have increased marginally from $0.50 million in Q3 2005, to $0.64 million in Q3 2006, as a result of increasing investor relations activities. • The Company recorded a non-cash equity-based compensation expense of $2.10 million in the first nine months of 2006 and $0.67 million in Q3 2006, compared to $0.77 million and $0.45 million, respectively, for the same periods of 2005. This increase is due to the larger cost recognised in the first nine months of 2006 related to outstanding restricted share units and share options during this period, compared to the same period of 2005. In the first nine months of 2005, there were no restricted share units and fewer share options outstanding which had not been fully expensed. In the first nine months 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 nine months 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 $0.90 million in the first nine months of 2005 and a small gain of $0.03 million in Q3 2005. The loss resulted primarily from a strengthening of the United States dollar against the Euro as at 30 September 2005 compared to 31 December 2004. In contrast, the Company realised a foreign exchange gain of $0.15 million in the first nine months of 2006 and a small loss of $0.07 million in Q3 2006. The gain is due in part to the weakening of the United States dollar against the Euro as at 30 September 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 the first nine months of 2006. • Hellas Gold's administrative and overhead expenses amounted to $3.54 million in the first nine months of 2006 and $1.74 million in Q3 2006, compared to $2.25 million and $0.97 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 nine months 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 $2.14 million in the first nine months of 2006 and $0.76 million in Q3 2006, compared to $3.23 million and $1.56 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 $2.30 million in the first nine months of 2006 and $0.27 million in Q3 2006, compared to $Nil million for the same periods of 2005, for the rehabilitation of old adits and equipment at Stratoni. • The Company recorded a charge for income taxes of $2.56 million in the first nine months of 2006 and $1.12 million in Q3 2006, compared to a credit of $1.31 million and a charge of $0.47 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 charge in Q3 2005 had arisen due to Hellas Gold capitalising a portion of its costs, resulting in a decrease in future tax asset. • The Company recorded a charge of $2.21 million in the first nine months of 2006 and $1.51 million in Q3 2006 relating to the non-controlling shareholder's interest in Hellas Gold's profit (after tax) for these periods, compared to a credit of $1.27 million and $1.00 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 September 2006, the Company had cash and cash equivalents of $31.81million, compared to $30.54 million as at 31 December 2005, and working capitalof $39.67 million, compared to $33.77 million as at 31 December 2005. The increase in cash and cash equivalents as at 30 September 2006, compared tothe balances as at 31 December 2005, resulted primarily from operating profits($10.40 million), proceeds received from exercise of share options ($2.45million) and the effects of foreign currency translation on cash ($0.81million), partly offset by a net increase in accounts receivable vs accountspayable ($4.38 million), capital expenditure in Greece ($3.44 million), deferredexploration and development costs in Romania ($2.44 million), deferreddevelopment costs in Greece ($1.94 million), an increase in inventory ($0.14million) 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 --------- --------- ------------------------- ----------Operatinglease (Londonoffice) 840 187 373 280 -Explorationlicencespendingcommitments(Voia,Romania) 1,242 - 1,242 - ----------------- -------- ---------- --------- --------- ---------Totalcontractualobligations 2,082 187 1,615 280 ----------------- -------- ---------- --------- --------- --------- For the three-month period ending 31 December 2006, the Company expects to spenda total of(i) $3.48 million in capital expenditures to fund the development of itsStratoni projects (including exploration costs), (ii) $1.18 million inexploration and development costs for Greece ($0.62 million) and Romania ($0.56million), (iii) $3.05 million in Hellas Gold administrative and overheadexpenses and other Hellas Gold non-operating expenses and (iv) $0.65 million incorporate administrative and overhead expenses. The Company expects to fund suchcosts from existing cash balances 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: 113,890,876Common share options: 3,739,332Restricted share units: 1,920,000Common shares (fully-diluted): 119,550,208 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 reach 170,000 tonnes by the end of 2006,steadily increasing to 400,000 tonnes per annum by year five. In January 2006, Hellas Gold submitted a business plan to the Greek State forthe joint 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 thatthe Ministry is in agreement with the principles stated in the business plan,and that the Ministry considers the business plan 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. Hellas Gold is currently finalising a full environmental impact study which isexpected to be submitted to the Greek government in December 2006. On approvalof the study, the environmental permits for Skouries and Olympias are expectedto 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. Romania - The Company has completed all necessary Environmental ImpactAssessments (EIA Levels I and II) for the Certej project. The Company is nowcompleting an Environmental Impact Study (EIS) and a feasibility study, insupport of an application for mining permits expected to be submitted in Q12007. 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. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
EGU.L