LONDON, April 12 /CNW/ - Summary of Results
-- Gold production was 27,921 ounces for the third quarter, bringing year to date production to 67,155 ounces - consistent with the Company's reforecast objective of 95,000 ounces for the full year.
-- Cash costs were $US 253 per ounce for the quarter and $US 303 for the nine months to February 28, compared with $US 203 and $US 199 for the corresponding quarter and nine month period of the previous financial year. Cost performance for the third quarter was consistent with previous quarters with the higher production volumes reducing the unit cost per ounce.
-- Net profit after tax for the third quarter was $ 3,899,000 or $ 0.080 basic earnings per share, with net profit for the 9 months to February 28, 2007 of $ 8,217,000 or $0 .17 basic earnings per share.
-- Cash flow from operations before non-cash working capital movements was $ 5,641,000 for the third quarter and $ 12,821,000 for the year to date.
-- The higher average realized gold price for the third quarter of $ 638 per ounce resulted in increased sales of $ 16,606,000 when compared with the corresponding quarter of the previous financial year, when sales of $ 12,167,000 were recorded at an average sales price of $ 510 per ounce.
-- The interim dividend of C$ 2.0 cents per share announced with the results for the second quarter on 11th January 2007 will be paid to shareholders on 12 April 2007.
Tony Shearer, Chairman commented: "The strong production results during the quarter demonstrate that the Company is making up the shortfall from the first half and is on track to produce 95,000 ounces for the year. Unit operating costs have fallen in line with these higher production volumes. Financial performance has also improved with the average sales price of gold benefiting from no hedge deliveries. Approvals to divert the Arroyo Corrales provide increased certainty for the company in achieving its near term objectives and underwrites the cashflows necessary to grow the company in the coming years. Our Board visit to Uruguay during February confirmed that the management team changes are starting to make an impact with increased exploration and development activity, and better focus on delivering resource growth."
3 Months to 9 Months to
-------------- --------------
Feb Feb Feb Feb
2007 2006 2007 2006
Operating Review
Gold produced Ounces 27,921 25,451 67,155 75,937
Average cash cost US$/oz 253 203 303 199
Average price received US$/oz 638 510 593 465
---------------------------------------- -------------- --------------
Financial Review
Revenue US$
'000s 16,606 12,167 41,216 35,214
Net income (loss) for the period US$
'000s 3,899 2,322 8,217 6,506
Cash flow from operations (a) US$
'000s 4,840 3,599 11,737 10,913
Basic earnings per share US$ 0.08 0.05 0.17 0.14
Cash at the end of the period US$
'000s 7,796 3,590 7,796 3,590
Total debt at the end of period US$
'000s 2,425 4,008 2,425 4,008
---------------------------------------- -------------- --------------
(a) before non-cash working capital movements
Summary of Significant Events
Diversion of the Arroyo Corrales
The Company has been granted the environmental and regulatory approvals necessary to divert the Arroyo Corrales. Construction work began in March and is expected to take four months to complete. Where possible the Company will use its own equipment fleet to assist in construction to provide greater certainty on timing. The level of rain during construction and water flow in the Arroyo may affect the ultimate completion date and contingencies are being developed for such delays.
New appointments
The appointment of Devin Den Boer as the Exploration Manager for the Isla Cristalina Belt during the quarter completes the senior management positions in exploration. Devin and Alex Raab, who was appointed as the Exploration Manager for the Dom Feliciano and Florida Belts in the previous quarter, report to George Schroer, VP Exploration. Ernesto Lamilla, an experienced mining engineer, was also appointed as Technical Services Manager during the quarter.
Increasing Gold Resources
Exploration drilling at the San Gregorio mine during the quarter was focused on resource definition of the Veta A and Veta Sur deposits. A relatively small section of these vein deposits has provided an inferred resource of 28,700 ounces as of the last resource statement. Detailed definition drilling continues to replace the ounces that have been mined from the resource. Exploration in the coming quarter will focus on more significant strike and down dip extensions of these deposits to build a larger resource. Exploration drilling will also test known parallel veins.
The Argentinita/Zapuchay district continues to be developed. Work during the quarter focused on completing drilling for resource and reserve estimation and on mapping and sampling further along strike. New zones of mineralization have been identified along strike further north and east of Argentinita at Lilo and Tito Perez respectively. Rock chip samples have returned values of up to 29 g/t Au in oxidized quartz vein material. These deposits are potentially all part of the same shear zone, and further mapping during the quarter will be followed up with drilling to build resources.
The re-evaluation of the structural setting in the western portion of the Isla Cristalina and a ground magnetic survey over the same area is identifying a priority corridor for exploration between San Gregorio and Argentinita. Sampling and initial mapping at Papagayo, a prospect approximately 5 km west of Argentinita, has identified mineralization associated with a shallow thrust fault and quartz veins. During the coming quarter more detailed mapping of the district will be performed by the Company's structural geologist to develop a conceptual model for the emplacement of mineralization within the district.
Exploration programmes in the Florida and Dom Feliciano Belts were launched during the quarter. Mapping and sampling at Presidente Terra has confirmed the existence of a 7 km mineralized contact shear between meta sediments and granite rock. New areas of gold mineralization and veining have also been discovered. Mapping and sampling at the Crucera project are confirming extensions to mineralized structures and are identifying new veins. Drilling on this target is planned for the coming quarter.
Acquisitions
The Company has entered into a farm-in and data acquisition agreement with DelcoSur S.A. for exploration properties within the Florida Greenstone Belt. This transaction provides the Company with a number of advanced exploration targets, additional information on existing UME prospects such as Casupa, and historical regional sampling and interpretation work performed on the Florida Greenstone belt. This package allows the Company to accelerate exploration work within the Florida Greenstone Belt and to invest its future exploration expenditure more effectively.
Initial work on the properties acquired will be focused on the Nueva Helvecia property, which is located in the central portion of the Florida Belt. Historic drilling conducted in 1997 by REA Gold Corp at the Campo Rovaina prospect intercepted 10 metres grading 3.2 g/t Au (including 4.85 g/t Au over 5 metres) at a vertical depth of 40 metres. A test trench was excavated by DelcoSur across the surface projection of the drill intercept. Channel samples from the trench averaged 3.28 g/t Au using a one-gram cut off over a width of 12.8 metres. This mineralization coincides with a gold soil anomaly approximately 500 metres long and between 50 to 200 metres wide. The central portion of this gold soil anomaly coincides with a 300-metre long arsenic soil anomaly.
Non-gold exploration
At Lascano, a drill programme is underway to test the magnetic susceptibility and density of the rock units at various points in the most prominent circular feature of the anomaly. Two drill holes, one on the rim and a second in the centre have been completed. A third drill hole on the rim is in progress and is currently at approximately 700 metres. Drilling is relatively slow given the depth of the holes (up to 1,000 metres), the alluvial coverage over the basement rock (50-100 metres), the fact that the drilling is in low-lying, wet areas and that far more rain has fallen recently than is usual.
Dominant rock types encountered to date are diorite to gabbro, quartz feldspar porphyry, and basalt lava flows. In the first hole the more interesting rocks encountered were gabbros to diorites with lenses of granophyre. The rocks in this hole were not altered except for near surface oxidation. The second hole showed evidence of iron oxide metasomatism and locally weak (trace) pyrite and chalcopyrite mineralization. This is both interesting and encouraging. Minor clay alteration is associated with this mineralization. Sampling of selective intervals has been carried out for trace element chemistry and petrographic work as well as geophysical characteristics. This work will allow the Company to continue to develop its conceptual model of the geological setting for the anomaly. At present, the Company is working on two possible geologic models as being the cause of the anomalies. One is that large intrusive bodies have entered the surrounding country rock causing the circular pattern. The second is a volcanic caldera. Significant mineral deposits can be associated with these two model types.
The third drill hole will be completed at the end of April with the remaining three holes expected to be completed over the next three months. Drilling progress will, however, be dependent on the weather. Assaying, petrographic work and geophysical property analysis will then follow and take another month to complete. While analysis is ongoing, the Company expects to define a model, select targets to test for mineralized bodies and decide how to progress this significant and unique project in the second half of the calendar year.
During the quarter, work continued on the diamond project. Kimberlite indicator minerals, including pyrope garnets and crome spinels have been obtained from follow-up stream sampling for diamonds in the Rivera area during the quarter. This sampling programme, the interpretation of aeromagnetic and gravity surveys, prospecting and air-photo studies have identified a number of priority areas for further work. A detailed ground magnetic survey was performed at one of the priority areas during the quarter and has confirmed magnetic geophysical anomalies consistent with geomorphic features and positive soil and stream sediment indicator minerals. Other priority areas will be followed up and an initial drilling phase is planned for the coming quarter.
During the quarter the company acquired Southern Era Diamonds Inc's historical Uruguayan geological database including geochemical sampling, drilling results and airborne magnetic surveys. This data will allow UME to accelerate progress on the diamond exploration in Uruguay, supporting its plan to continue to build value in the project, prior to a farm out or initial public offering.
Chairman's Statement
Financial Performance
Our quarterly results to 28 February 2007 show increased profitability resulting from improved production volumes and higher average sales prices. Our quarterly production of 27,921 ounces has put us on track to achieve the full year reforecast of 95,000 ounces. All sales in the current quarter were delivered at spot following the completion of hedge obligations in the previous quarter.
Operating cash costs have fallen from $US 345 per ounce for the second quarter to $US 253 for the third quarter, taking the year to date average to $US 303. This reduction has been a function of higher production levels with similar costs. Operating costs per tonne of material for the quarter are consistent with the first half of the financial year.
Reconciliation of cash costs between comparable periods in the 2007
and 2006 financial years
$US/Ounce
----------------------------------------------------------------------
9 Months 6 Months
to 28 to 31
February November
------------------------------------------------------------ ---------
Cash cost per ounce 2006 financial year $199 $197
Change in strip ratio 20 20
Other cost increases 49 47
------------------------------------------------------------ ---------
Cash cost before impact of lower production 268 264
Reduced production from lower grade 35 76
------------------------------------------------------------ ---------
Cash cost per ounce 2007 financial year $303 $340
------------------------------------------------------------ ---------
During the quarter we generated cash from operations and financing of $ 5,205,000 and re-invested $3,211,000 of this back into our operations giving a net cash generation for the quarter of $ 1,994,000. Comparatives for the nine month period are shown in the table below. During the current financial year $ 1,495,000 has been paid in dividends.
Cashflow Summary 3 Months 9 Months
$US 000 to 28 to 28
February February
------------------------------------------------------------ ---------
Operating cashflows $4,840 $11,737
Funds received from equity and debt issues 365 1,447
------------------------------------------------------------ ---------
5,205 13,184
Invested in property plant and equipment (1,252) (7,628)
Invested in exploration (1,959) (5,196)
------------------------------------------------------------ ---------
1,994 $360
Cash returned to shareholders as dividends - (1,495)
------------------------------------------------------------ ---------
Net cash generated/(used) $1,994 $(1,135)
------------------------------------------------------------ ---------
Our Strategy
The Company's primary objective is to create shareholder value through growing gold production to become a mid-tier gold producer over five years. The Company is focused on the key challenge of increasing gold reserves through successful exploration and alternative mining and processing methods. Accordingly, we have put in place plans to farm out or divest our base metals and diamond prospects going forward.
Production
During the quarter the Company reached a key milestone with the granting of permits to commence the diversion of the Arroyo Corrales. This milestone provides us with increased certainty on our three year mine plans and confirms that we will continue to generate the cashflow from operations necessary to fund our exploration investments. We have started work on the diversion, and expect to complete it in July 2007.
Senior management team
The Company has taken the initial steps in delivering on its growth intentions by recruiting the necessary members of the exploration and development team. Where possible we have also sought to acquire additional information and projects that can accelerate the achievement of these objectives. We have focused over 80 per cent of our exploration effort on known gold projects that have anomalous gold, and we are approaching a phase, over the next 12 months, when many of these projects will be drill tested.
Exploration to extend resources
We have divided our gold exploration teams into two areas, each under the leadership of an experienced and enthusiastic geologist. They are focused on expanding our gold resources. Devin Den Boer is responsible for the Isla Cristalina belt, and he has sub-divided it into three areas: the near mine area around the San Gregoria mine; the Zapucay/Argentinita area about 40 kilometres from the mine; and the eastern end of the belt. Near mine exploration has been refocused on targeting resource expansion from the extensive known gold system we are currently mining. The Zapucay/Argentinita system is in its early stages of evaluation with historical production of 30,000 ounces, new resources of 95,000 ounces (effective 1 November 2006) and an active exploration programme defining new mineralised areas along strike. The eastern end of the belt has received very little attention until a few months ago. There are many reasons to be encouraged with positive results from stream and rock chip samples. No drilling has been done to date but it will follow when the targets are better defined. We now have one team focused on each of these areas.
The second area is the Florida and Dom Feliciano mobile belts that lie respectively to the south and the east of Uruguay. Alex Raab has responsibility for these areas. He has a number of teams working on various projects with known extensive gold mineralisation such as Presidente Terra and Casupa. While these projects represent the immediate priority in our objective to define a resource, new targets are generated, reviewed and prioritised at the same time. Our decision to farm-in to projects owned by DelcoSur (as announced on 22nd March) and to acquire additional information will accelerate our plans and better target our exploration effort in an important part of the Florida belt.
The Board visited Uruguay in February, to understand better the progress on operations, exploration and development. This visit demonstrated that we are making the transition from a consolidation phase, in which our focus was on putting the appropriate people, resources and systems in place, to a development phase, characterised by more intensive and more clearly focused field exploration activity.
With better-qualified technical direction and processes in place, field exploration is also now more systematic. All projects are mapped, sampled and trenched, at reasonable densities, so as to define targets better. During the quarter, over 75% of our exploration efforts focused on these activities and, as a result, we have defined new areas of mineralisation at Argentinita/Zapuchay and Presidente Terra. Management has also sought input from external specialists for structure and geophysics and is improving the quality of the exploration process. These initiatives are starting to result in better definition of drill targets, enabling the Board to conclude that the Company's chances of exploration success in future drill programmes has been greatly enhanced.
While the recent exploration focus has been, and will continue to be, on adding incremental ore to reserves and resources, it is clear that we now have the cash and people to continue with generative grassroots programmes at the same time. We are following up historical bleg and other anomalies in the eastern and central northern parts of the Isla Cristalina belt and in the Casupa district in the Florida belt. Indications are that all these areas have the potential to host significant gold deposits.
Other sections of the Company's Management Discussion and Analysis for the period explain our work in more detail.
Resources and reserves
Our intention is to publish annually in August, in conjunction with the full year financial statements, an update of the reserves and resources, and in between to describe our activities, only updating the announced reserves and resources if the change is material. Accordingly, the next time we will be updating the published reserves and resources will be August 2007 in conjunction with the announcement of the financial results for the full year ending 31st May 2007.
Non-gold exploration
We are continuing to evaluate the best alternatives for realizing value from the Company's non-gold assets in Uruguay. Interest from international companies in the base metal and nickel properties is still being received and will be considered. A number of international companies are presently reviewing these projects and the Company is considering how best to take them forward.
Important advances have been made on diamond exploration during the quarter and we aim to drill test a number of targets in the coming quarters before re-assessing our divestment options. Our acquisition of the database from Southern Era (as announced on 19th March) should reduce our need for sampling in some areas and accelerate the programme. This should enable us to build value in the project faster than we would otherwise have done, prior to a farm-out or an Initial Public Offering.
Additional work will continue to be done on the Lascano project over the next six months and we will make an assessment of the best way to develop the project in the latter part of Calendar 2007.
Dividend
The interim dividend of C$ 2.0 cents per share announced on 11th January 2007 will be paid on 12 April 2007 to shareholders registered on 22 March 2007. This will cost a total of C$ 962,000 and compares with the dividend of C$ 3.5 cents per share paid on 27 October 2006. It is the Board's intention to recommend to the Annual General Meeting that a final dividend be paid in October 2007.
Summary
The strong production results during the quarter demonstrate that the Company is making up the shortfall from the first half and is on track to produce 95,000 ounces for the year. In line with these higher production volumes, unit operating costs have fallen. Financial performance has also improved with the average sales price of gold benefiting from no hedge deliveries. The granting of approvals to divert the Arroyo Corrales provides increased certainty for the Company in achieving its near term objectives and underwrites the cashflows necessary to grow the Company in the coming years. Our Board visit to Uruguay during February confirmed that the management team changes are starting to make an impact with increased exploration and development activity and better focus on delivering resource growth.
Tony Shearer Chairman
Qualified Person's Statement
The technical information presented in this press release has been reviewed and verified by Mr John Sadek, Vice President Operations and a Mining Engineer, and Mr. George Schroer Vice President Exploration and a Certified Professional Geologist. Mr. Sadek and Mr. Schroer are the Qualified Persons for the purposes of the AIM Guidance Note on Mining, Oil and Gas Companies dated March 2006. Mr Sadek has a Bachelor of Engineering (Mining) from the University of Sydney and is a member of the AusIMM and SME. He has over 20 years of international experience in mining. Mr. Schroer has a Masters of Science in Geology from Colorado State University and is a member of SEG and AIPG. He has over 20 years of international experience in exploration.
Conference Call Details
The management of Uruguay Mineral Exploration inc. will host a conference call to discuss the results at 11.00 EDT, 16.00 BST on Thursday 12th April 2007. The dial-in numbers are: +44 (0)20 7138 0825 / +1 416 915 1269 and participants should quote Uruguay Mineral Exploration. A live audio stream of the conference call can also be accessed at www.uruguayminerals.com. Please dial in / log on five minutes prior to the start of the call to allow time for registration. A recording of the conference call will be available for 7 days afterwards, from approximately 1 hour after the live call has finished, on : +44 (0)20 7806 1970 / +1 718 354 1112, access code:3867642(number sign). A recording will also be available at www.uruguayminerals.com.
ENDS
The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this news release.
Editor's note: Uruguay Mineral Exploration Inc. is a gold producer and exploration company focused on identifying and developing mineral opportunities in Uruguay. UME is a fully integrated mining company, possessing the skills necessary to explore and develop its discoveries. The Company operates the only producing gold mine in the country (San Gregorio), and is also the leading mineral exploration company in Uruguay having assembled an exploration portfolio based on gold, base metals (copper, nickel, lead, zinc) and diamond prospects. In the first half of 2003, the Company discovered the Arenal deposit, currently the largest known gold resource in Uruguay.
Uruguay Mineral Exploration Inc. is quoted in Canada (TSXV) and London (AIM) and Collins Stewart Europe Limited is the Nominated Adviser and broker.
Uruguay Mineral Exploration Inc. Consolidated Interim Financial Statements For the three and nine month periods ended February 28, 2007 (Unaudited - prepared by management)
In accordance with National Instrument 51-102 released by the Canadian Securities Administrators, the Company discloses that its auditors have not reviewed the un-audited financial statements for the periods ended February 28 2007.
Uruguay Mineral Exploration Inc.
Consolidated Balance Sheets
(Unaudited - prepared by management)
(Thousands of United States Dollars, except where indicated)
As at As at As at
February May 31 February
28 2007 2006 28 2006
----------------------------------------------------- ------- --------
$ $ $
Assets
Current
Cash and cash equivalents 7,796 8,931 3,590
Accounts receivable 2,723 1,699 2,814
Inventories 9,716 8,108 7,792
Prepaid expenses and other 623 612 647
-------- ------- --------
20,858 19,350 14,843
Property, plant and equipment (Note 2) 22,470 22,896 24,788
Deferred exploration costs (Note 3) 16,379 11,184 8,308
Future income tax 578 1,855 959
Deferred stripping and other non current
assets (Note 4) 5,892 4,723 3,065
-------- ------- --------
Total assets 66,177 60,008 51,963
-------- ------- --------
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued liabilities 4,592 5,076 3,754
Dividend provision 840 - -
Current portion of long term debt (Note 5) 1,188 2,058 2,190
Unrealized fair value of derivatives (Note
10) - 2,317 2,529
-------- ------- --------
6,620 9,451 8,473
Future income tax liabilities 2,349 1,486
Long term debt (Note 5) 1,237 2,167 1,818
Asset retirement obligation 1,665 1,665 1,624
-------- ------- --------
Total liabilities 11,871 14,769 11,915
Equity instruments (Note 6) 34,587 32,858 31,675
Contributed surplus (Note 7) 3,081 1,625 1,694
Cumulative translation adjustment (19) (19) (19)
Retained Earnings 16,657 10,775 6,698
-------- ------- --------
Total Shareholders' Equity 54,306 45,239 40,048
-------- ------- --------
Total Liabilities and Shareholders Equity 66,177 60,008 51,963
-------- ------- --------
Uruguay Mineral Exploration Inc.
Consolidated Statements of Income and Retained Earnings (Deficit)
(Unaudited - prepared by management)
(Thousands of United States Dollars, except where indicated)
Three months ended Nine months ended
February 28 February 28
2007 2006 2007 2006
----------------------------------------------- ----------------------
$ $ $ $
Sales 16,606 12,167 41,216 35,214
Net profit interest - - (635)
---------------------- ----------------------
Net Sales 16,606 12,167 41,216 34,579
Operating expenses 7,374 5,289 21,799 16,019
Amortization, depletion
and accretion 2,331 2,181 6,255 6,497
Other expenses
Compensation expense -
stock based 278 176 758 334
Fair value adjustment
for derivatives - 937 (2,317) 2,349
General and
administrative 1,229 705 3,218 1,952
Interest and financing
fees 79 137 249 311
---------------------- ----------------------
1,586 1,955 1,908 4,946
---------------------- ----------------------
Income before other items
and taxes 5,315 2,742 11,254 7,117
Other items
Gain on settlement of
net profit interest - - - 888
Interest and other
income 119 138 356 40
Foreign exchange gain /
(loss) (44) (133) (202) (179)
---------------------- ----------------------
Income before taxes 5,390 2,747 11,408 7,866
---------------------- ----------------------
Income taxes 1,491 425 3,191 1,360
Net income for the period 3,899 2,322 8,217 6,506
---------------------- ----------------------
Retained earnings,
beginning of period 13.598 4,376 10,775 192
Dividend
distribution/provision
for dividends (840) - (2,335) -
Retained earnings, end of
period 16,657 6,698 16,657 6,698
----------------------------------------------- ----------------------
Basic earnings per share 0.08 0.05 0.17 0.14
Diluted earnings per
share 0.08 0.05 0.17 0.13
Basic weighted average
no. of shares 48,451,768 46,708,080 48,168,433 46,387,746
----------------------------------------------------------------------
Uruguay Mineral Exploration Inc.
Consolidated Statements of Cashflows
(Unaudited - prepared by management)
(Thousands of United States Dollars, except where indicated)
Three months Nine months
ended ended
February 28 February 28
2007 2006 2007 2006
-------------- ----------------
$ $ $ $
Operating activities
Net income for the period 3,899 2,322 8,217 6,506
Adjustments for:
Amortization, depletion and
accretion 2,331 2,181 6,255 6,497
Future income taxes (537) (319) 1,277 86
Deferred stripping (341) (803) (1,354) (2,244)
Fair value adjustment of
derivatives - 937 (2,317) 2,349
Compensation expense - stock based 278 176 758 334
Other 11 1 (15) 174
-------------- ----------------
5,641 4,495 12,821 13,702
Net change in non-cash working
capital balances (Note 9) (801) (896) (1,084) (2,789)
-------------- ----------------
4,840 3,599 11,737 10,913
-------------- ----------------
Financing activities
Proceeds from the issue of share
capital, net of costs 344 224 1,512 428
Finance lease drawdown 105 - 105 -
Payments of finance lease (84) - (170) -
Dividend payment - - (1,495) -
-------------- ----------------
365 224 (48) 428
-------------- ----------------
Investing activities
Refundable deposits - 3 - -
Purchase of property, plant and
equipment (1,252)(5,176) (7,673)(11,428)
Payments for exploration (1,959)(1,347) (5,196) (2,474)
Proceeds on sale of assets - - 45 650
-------------- ----------------
(3,211)(6,520) (12,824)(13,252)
-------------- ----------------
Increase (decrease) in cash 1,994 (2,697) (1,135) (1,911)
Cash and cash equivalents, beginning of
period 5,802 6,287 8,931 5,501
-------------- ----------------
Cash and cash equivalents, end of
period 7,796 3,590 7,796 3,590
----------------------------------------------------------------------
Uruguay Mineral Exploration Inc. Notes to Consolidated Interim Financial Statements (Unaudited - prepared by management) (Thousands of United States Dollars, except where indicated)
1. Significant Accounting Policies
The unaudited interim financial statements of the Company have been prepared by management in accordance with Canadian generally accepted accounting principles. The reporting currency used is the United States dollars which is also the Company's functional currency. The preparation of consolidated financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The consolidated financial statements have, in management's opinion, been adjusted to reflect all adjustments required to reflect a fair presentation of these statements in accordance with the accounting policies of the company. These interim consolidated financial statements should be read in conjunction with the most recent annual consolidated financial statements for the year ended May 31, 2006 for detailed note disclosures. The significant accounting policies follow that of the most recently reported annual consolidated financial statements.
2. Property, Plant and Equipment
February 28 2007
------------------------------
Cost Accumulated Net Book
Amortization Value
-------- ------------ --------
Land and lease rights $1,895 $- $1,895
Plant and equipment 23,506 10,986 12,520
Mineral properties 15,570 7,515 8,055
-------- ------------ --------
$40,971 $18,501 $22,470
-------- ------------ --------
May 31 2006
------------------------------
Cost Accumulated Net Book
Amortization Value
-------- ------------ --------
Land and lease rights $1,895 $ $1,895
Plant and equipment 20,362 7,474 12,888
Mineral properties 13,218 5,105 8,113
-------- ------------ --------
$35,475 $12,579 $22,896
-------- ------------ --------
February 28 2006
------------------------------
Cost Accumulated Net Book
Amortization Value
-------- ------------ --------
Land and lease rights $671 $- $671
Plant and equipment 20,605 6,368 14,237
Mineral properties 14,066 4,186 9,880
-------- ------------ --------
$35,342 $10,554 $24,788
-------- ------------ --------
a) On November 30, 2005 a subsidiary of the Company acquired the 10% net profits interest over key tenements within the Minas de Corrales Project including the tenements on which the Arenal deposit is located. The total cost of the acquisition was $ 4,246 with $ 3,500 allocated to mineral properties and $ 746 allocated to deferred exploration and development costs. The consideration for the acquisition was 290,000 common shares and $ 3,150 payable in 3 equal annual installments of $ 1,050. Terms of the notes are detailed at Note 5(d). An additional $ 1,050 is payable to the vendor if the average daily gold price for the 36 months to 30 June 2008 exceeds $400 per ounce.
b) The plant is located on leased land. The lease expires in 2026. No further payments are due on the lease.
c) Mineral properties includes development costs incurred to bring a mining property into production, develop new ore bodies or develop mining areas in advance of production, and are capitalized and charge to operations using the units of production method based on the estimated life of mine. As of 1st of November 2006, the Company reassessed its reserves and resources in a fully compliance with NI 43-101 requirements and CIM definitions, determining a lowered reserve. The change in estimation affected the quarter determining an increase in amortization of mineral properties, and will be accounted for prospectively resulting in a higher amortization per ounce of production over the life of the mine.
3. Deferred Exploration and Development Costs
February February
28, May 31, 28,
2007 2006 2006
-------- -------- --------
Acquisition costs and option payments $775 $775 $1,521
Exploration, development and other property
costs 13,712 8,853 5,311
Capitalized indirect overheads, net of
exchange gains 1,892 1,556 1,476
-------- -------- --------
$16,379 $11,184 $8,308
-------- -------- --------
a) Prior to October 2006, the Uruguay Mining legislation requested all mining titles to be supported by guarantees for any environmental rehabilitation requirements resulting from exploration or mining activities. These guarantees were required to be posted by non-title holders. As a result, certain of the Company's employees, officers and directors had provided personal assets as guarantees. The Company intends to compensate these individuals in the event that the guarantee is called. The Company has also agreed to pay a guarantee fee to the individuals at rates advantageous to the Company. This fee is based on the amount of the guarantee and is negotiated on a case-by-case basis.
As of October 2006, regulations for guarantees were changed. This change requires future guarantees to be provided by a recognized financial institution or be supported by Uruguayan public bonds or cash deposits in a Uruguayan State Bank.
The total guarantees provided at February 28, 2007 were approximately $ 1,890 (May 31, 2006 $ 1,390).These relate to potential site restoration responsibilities associated with exploration activities. The Company has also provided the Uruguayan state with a rehabilitation performance bond for the San Gregorio mine and operations. This obligation is in the amount of $1,500 (May 31, 2006, $ 1,500).
4. Deferred Stripping and Other Non Current Assets
February February
28, May 31, 28,
2007 2006 2006
-------- ------- --------
Refundable deposits $140 $140 $140
Capitalized debt issue costs - 145 113
Deferred Stripping 5,752 4,438 2,812
-------- ------- --------
$5,892 $4,723 $3,065
-------- ------- --------
(a) Deferred Stripping costs
Using the deferred stripping accounting method, mining costs associated with waste rock removed in excess of the life of the mine average are deferred and charged to operations on the basis of the average strip ratio for the life of the mine. When the cumulative strip ratio is less than the life of mine average, a provision for future stripping is made.
The average strip ratio for the mine life was estimated to May 31, 2006 to be 4.34:1. Reevaluation of the strip ratio was then made determining a new ratio of 5.59:1. At November 30, 2006 strip ratio applied was 5.75:1 as a result of a marginal increase in ore. As of February 07 same strip ratio estimation was assumed.
The amount charged to operations is therefore subject to management's ability to estimate the stripping ratio over the life of the mine. Any changes to this estimate could have a material affect on the financial statements.
5. Long Term Debt
February February
28, May 31, 28,
2007 2006 2006
-------- ------- --------
Drawn debt facilities
Deferred payment on acquisition of Net profit
interest (a) $1,980 $2,905 $2,847
Finance lease (b) 445 457 -
Deferred payment on equipment (c) - $863 1,161
-------- ------- --------
2,425 4,225 4,008
Less current portion (1,188) (2,058) 2,190
-------- ------- --------
$1,237 $2,167 $1,818
-------- ------- --------
February February
28, May 31, 28,
2007 2006 2006
-------- ----------------
Available debt facilities
Finance lease (b) $- $43 $-
Deferred payment on equipment (c) - 1,161
Working capital facility (d) - 2,000 2,000
-------- ------- --------
$- $2,043 $3,161
-------- ------- --------
(a) On May 31, 2006, a subsidiary of the Company signed a financial lease facility agreement of $ 500 with ABN AMRO N.V. Sucursal Montevideo for the purchase of light vehicles. The facility is payable in equal monthly installments over a three year period at 180 days LIBOR plus 2.5% rate of interest. As of February 28, 2007, $ 445 of the facility has been drawn.
(b) On November 30, 2005 a subsidiary of the Company issued three unsecured convertible notes with a face value of $ 1,050 pursuant to the acquisition detailed at note 2(a). The three convertible notes are payable on or before July 30, 2006, July 30, 2007 and July 30, 2008 respectively. Each convertible note can be converted into 250,000 ordinary shares during a 30 day period prior to the final payment date for each installment. No interest accrues on the notes. First convertible note expired in July 2006, was paid in cash and was not converted into shares. The two remaining convertible notes are shown recorded at their net present value using an 8.5% discount rate.
(c) On August 5, 2004, a subsidiary of the Company signed a sale and purchase agreement for the purchase of $6,349 in mine equipment amended on June 15, 2005 to purchase an additional $ 1,352. The equipment was purchased on deferred payment terms with an initial payment of 25%, twelve monthly installments equal to 15% and a final balloon payment of 60% 12 months from the date that equipment is assembled and ready to work. Interest on all balances outstanding accrues at the 90 day Libor rates plus 4%. As of this date, payments obligations have been duly fulfilled and no balances remain outstanding.
(d) On August 8, 2004, the Company entered into a secured $2,000 interim working capital facility with Macquarie Bank Limited. On October 26, 2004 this interim facility was increased to $3,000. On December 8, 2004 the Company signed documentation for a secured financing facility of $6,500 replacing an interim working capital facility with Macquarie Bank Limited for $ 2,000, at a rate of Libor plus 2%, and secured by a general floating charge over all of the Company's assets. As of February 28, 2007, the facility has expired.
6. Equity Instruments
(a) Authorized
Unlimited number of Common Shares
(b) Issued
Common shares February 28, 2007 May 31, 2006
Number
Number Amount (000's) Amount
----------------- ----------------
Issued and outstanding, beginning of
year 47,525 $33,595 46,107 $30,308
Issued for stock options exercised 755 904 1,077 1,951
Issued for acquisition of NPI (Note
6(d)) - - 290 1,096
Issued for mine properties
acquisition - - 51 240
Issued for exercise of warrants for
cash 250 1,013 -
----------------- ----------------
Issued and Outstanding 48,530 $35,512 47,525 $33,595
----------------- ----------------
Less: cumulative share issue costs
(1) (925) (925)
----------------- ----------------
Issued and outstanding, end of year 48,530 $34,587 47,525 $32,670
----------------- ----------------
Warrants and convertible notes February 28, 2007 May 31, 2006
Number Amount Number Amount
----------------- ----------------
Issued and outstanding, beginning of
year 1,000 $188 250 $188
Issued for acquisition of NPI (note
6d) - - 750 -
Expired (250) - - -
Exercised (250) (188) - -
----------------- ----------------
Issued and outstanding, end of year 500 $- 1,000 $188
----------------- ----------------
Total equity instruments $34,587 $32,858
----------------- ----------------
(1) These costs have been recorded gross of any related tax effect, as the ultimate utilization of any related tax benefit is currently uncertain.
(c) Warrants and Convertible Notes
On November 30, 2005, the Company acquired the net profit interest in tenements at the Minas de Corrales Gold Project as described at Note 2(a). Pursuant to this agreement the Company issued three convertible notes that provide the holder with the option to convert the note, with a face value of $ 1,050, into 250,000 ordinary shares. The note may only be converted during a 30 day period prior to the expiry date. The fair value of the option to convert the notes into ordinary shares was calculated as the difference between the nominal and fair value of the notes.
The convertible notes expire as follows:
Ordinary shares to be issued on Option Price Expiry Date
conversion of promissory note US $
---------------------------------------------------------------
250,000 4.20 July 30, 2007
250,000 4.20 July 30, 2008
The first convertible note expired in July 30, 2006 and was not exercised.
At February 28, 2007, the Company has nil (May 31, 2006 - 250,000) warrants outstanding.
(d) Employee Stock Options
The Company has an option Plan for its officers, directors, employees and consultants of the Company and its subsidiaries. Options under the plan are typically granted in such numbers as reflects the responsibility of the particular optionee and his or her contribution to the business and activities of the Company. Options granted under the plan have a term of up to 5 years. Except in specified circumstances, options are not assignable and terminate on the optionee ceasing to be employed by or associated with the Company. The terms of the Plan further provide that the price at which shares may be issued under the Plan cannot be less than the market price (net of permissible discounts) of the shares when the relevant options were granted.
The following table summarizes information regarding the Company's outstanding options as at February 28, 2007:
Weighted
Average
Number Option Price Exercise
of per Share Price
Shares Range CDN $ CDN $
------- -------------- ---------
Balance at beginning of the period 2,567 $0.4 - $5.50 $3.03
Options - granted 1,316 $3.90 - $5.29 $4.47
Options - exercised or cancelled (755) $0.4 - $3.0 $1.03
-------
Options outstanding, February 28, 2007 3,128 $0.75 - $5.50 $4.12
-------
For the purposes of stock based compensation, the fair value of each option was determined on the date of granting using the Black-Scholes option pricing model with the following assumptions for the nine month period: Dividend yield (range - Nil to Canadian $3.5 cents per share) (2006 - Nil), expected volatility (range - 40% to 60%) (2006 - 60%), risk-free interest rate (range 4% to 4.8%) (2006 - 4.3%), and weighted average life of 2 to 4 years (2006 - 3.0 years). At February 28, 2007, the aggregate unamortized fair value of unvested stock options granted amounted $ 1,202 (May 2006 - $ 722).
The following table summarizes information about the stock options outstanding to the officers, directors and staff at February 28, 2007:
Outstanding Vested options
---------------------------------------------------- -----------------
Weighted
Average
Weighted Average Remaining Exercise
Options Option price Exercise Price Life Options Price
(000,s) CDN $ CDN $ Years (000,s) CDN $
------- ------------- ---------------- ------------- -------- --------
15 $0.75 $0.75 1.06 15 $0.75
344 $1.50 $1.50 1.52 344 $1.50
103 $3.00 $3.00 2.27 103 $3.00
60 $3.40 $3.40 2.30 60 $3.40
570 $3.90 $3.90 4.63 - -
115 $3.90 $3.90 4.95 - -
200 $4.00 $4.00 2.16 200 $4.00
20 $4.10 $4.10 4.42 20 $4.10
763 $4.50 $4.50 3.55 254 $4.50
68 $4.62 $4.62 3.77 23 $4.62
190 $4.77 $4.77 4.27 - -
421 $5.29 $5.29 4.29 421 $5.29
200 $5.40 $5.40 2.74 200 $5.40
59 $5.50 $5.50 4.10 - -
------- --------
3,128 1,640
------- --------
(e) Earnings per share
The reconciliation of basic and diluted earnings per share where relevant are as follows:
Three months ended Nine months ended
February 28, February 28,
---------------------- ----------------------
2007 2006 2007 2006
---------------------- ----------------------
Basic earnings per share
Numerator
Net earnings available to
shareholders $3,899 $2,322 $8,217 $6,506
Denominator
Weighted average number
of shares outstanding 48,451,768 46,708,080 48,168,433 46,387,746
Basic earnings per share
(cents per share) 0.08 0.05 0.17 0.14
Three months ended Nine months ended
February 28, February 28,
---------------------- ----------------------
2007 2006 2007 2006
---------------------- ----------------------
Diluted earnings per
share
Numerator
Net earnings available to
shareholders $3,899 $2,322 $8,217 $6,506
Denominator
Weighted average number
of shares outstanding 48,451,768 46,708,080 48,168,433 46,387,746
Weighted potential net
incremental issue of
shares for warrants - 250,000 27,778 250,000
Weighted potential net
incremental issue of
shares from stock
options 41,820 2,181,333 147,088 2,120,170
Weighted potential net
incremental issue of
shares from convertible
notes - 750,000 333,333 750,000
---------------------- ----------------------
Shares outstanding plus
assumed conversions 48,493,588 49,889,413 48,676,632 49,507,916
Diluted earnings per
share (cents per share) 0.08 0.05 0.17 0.13
7. Contributed Surplus
The following table summarizes the movements in contributed surplus.
February February
28, May 31, 28,
2007 2006 2006
-------- ------- --------
Balance, beginning of period $1,625 $1,577 $1,577
Issuance of stock options (a) 917 - -
Expense for the period 758 536 334
Transfer on exercise of options (219) (488) (217)
-------- ------- --------
$3,081 $1,625 $1,694
-------- ------- --------
(a) On May 2006, the Company committed to the issue of 421,000 options to the retiring CEO. A stock compensation expense for $ 917 was recorded on May 2006 against a liability for the commitment of the shares issue. As of this date, shares have been issued and the liability has been recorded as contributed surplus.
8. Segmented Information
The Company has three reportable segments: Gold, exploration and corporate. The corporate segment is responsible for corporate financing and other business development activities for the Company. The Gold segment operates the San Gregorio Gold Project and the exploration segment is devoted to the acquisition and exploration of mineral properties. The gold and exploration segments operate solely in Uruguay. Precious metals are refined and sold in Europe.
February 28 2007
Gold Exploration Corporate Total
-------- ----------- --------- ---------
For the 3 months ending
Sales $16,606 $- $- $16,606
Amortization and depreciation $(2,331) $- $ $(2,331)
Net income (loss) $4,895 $(611) $(385) $3,899
For the 9 months ending
Sales $41,216 $- $- $41,216
Amortization and depreciation $(6,255) $- $ $(6,2,55)
Net income (loss) $10,838 $(1,583) $(1,038) $8,217
As at February 28
Property, plant and equipment $19,608 $1,627 $1,235 $22,470
Deferred exploration $- $16,379 $- $16,379
February 28 2006
Gold Exploration Corporate Total
-------- ----------- --------- ---------
For the 3 months ending
Sales $12,167 $- $- $12,167
Amortization and depreciation $2,174 $7 $- $2,181
Net income (loss) $2,789 $- $(467) $2,322
For the 9 months ending
Sales $35,214 $- $- $35,214
Amortization and depreciation $6,477 $20 $- $6,497
Net income (loss) $8,020 $(474) $(1,040) $6,506
As at February 28
Property, plant and equipment $24,621 $157 $10 $24,788
Deferred exploration $- $8,308 $- $8,308
9. Supplementary cash flow information
Three months Nine months
ended ended February
February 28 28
Net change in non-cash working capital 2007 2006 2007 2006
------------- ----------------
Prepaid expenses and other $109 $176 $(100) $75
Accounts receivable 786 316 (1,025) (287)
Accounts payable and accrued
liabilities (1,183) (957) 1,469 (1,191)
Inventory (513) (431) (1,428) (1,386)
------------- ----------------
$(801)$(896) $(1,084)$(2,789)
------------- ----------------
Other information
Cash interest paid $89 $79 $130 $253
Cash taxes paid (a) - - - -
(a) Tax were paid through the utilization of tax receivables from VAT refunds
10. Financial Derivatives
The Company holds various forms of financial instruments. The nature of these instruments and the Company's operations expose the Company to commodity price risk, currency risk, credit risk, and fair value risk.
The Company uses financial derivatives to mitigate the effect of certain risks that are inherent in its business. As at February 28, 2007 the Company has already cancelled all of its gold option contracts it has entered in the past to reduce its exposure to fluctuations in the gold price.
For these contracts the fair value was calculated using the spot price at period end, expected future prices and volatilities. The nature and level of these contracts are such that they offer a degree of downside protection while allowing the company some participation in price appreciation. The fair value of these contracts is noted below. The net value of these contracts has been recorded as a liability.
February February
28, May 31 28
2007 2006 2006
-------- -------- --------
Gold put options $- $- $5
Gold call options - (2,317) (2,219)
Gold spot deferred contract - - (315)
-------- -------- --------
$- $(2,317) $(2,529)
-------- -------- --------