Orosur Mining Regulatory News (OMI)

12 Apr 2007 07:00

Uruguay Mineral Exploration Inc Announces Results for the Quarter and Nine Months Ended February 28, 2007 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 thequarter demonstrate that the Company is making up the shortfall from the firsthalf and is on track to produce 95,000 ounces for the year. Unit operating costshave fallen in line with these higher production volumes. Financial performancehas also improved with the average sales price of gold benefiting from no hedgedeliveries. Approvals to divert the Arroyo Corrales provide increased certaintyfor the company in achieving its near term objectives and underwrites thecashflows necessary to grow the company in the coming years. Our Board visit toUruguay during February confirmed that the management team changes are startingto make an impact with increased exploration and development activity, andbetter focus on delivering resource growth." \* T 3 Months to 9 Months to -------------- -------------- Feb Feb Feb Feb 2007 2006 2007 2006Operating ReviewGold produced Ounces 27,921 25,451 67,155 75,937Average cash cost US$/oz 253 203 303 199Average price received US$/oz 638 510 593 465 ---------------------------------------- -------------- -------------- Financial ReviewRevenue US$ '000s 16,606 12,167 41,216 35,214Net income (loss) for the period US$ '000s 3,899 2,322 8,217 6,506Cash flow from operations* US$ '000s 4,840 3,599 11,737 10,913Basic earnings per share US$ 0.08 0.05 0.17 0.14Cash at the end of the period US$ '000s 7,796 3,590 7,796 3,590Total debt at the end of period US$ '000s 2,425 4,008 2,425 4,008---------------------------------------- -------------- --------------* before non-cash working capital movements\* T Summary of Significant Events Diversion of the Arroyo Corrales The Company has been granted the environmental and regulatory approvalsnecessary to divert the Arroyo Corrales. Construction work began in March and isexpected to take four months to complete. Where possible the Company will useits own equipment fleet to assist in construction to provide greater certaintyon timing. The level of rain during construction and water flow in the Arroyomay affect the ultimate completion date and contingencies are being developedfor such delays. New appointments The appointment of Devin Den Boer as the Exploration Manager for the IslaCristalina Belt during the quarter completes the senior management positions inexploration. Devin and Alex Raab, who was appointed as the Exploration Managerfor the Dom Feliciano and Florida Belts in the previous quarter, report toGeorge 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 onresource definition of the Veta A and Veta Sur deposits. A relatively smallsection of these vein deposits has provided an inferred resource of 28,700ounces as of the last resource statement. Detailed definition drilling continuesto replace the ounces that have been mined from the resource. Exploration in thecoming quarter will focus on more significant strike and down dip extensions ofthese deposits to build a larger resource. Exploration drilling will also testknown parallel veins. The Argentinita/Zapuchay district continues to be developed. Work during thequarter focused on completing drilling for resource and reserve estimation andon mapping and sampling further along strike. New zones of mineralization havebeen identified along strike further north and east of Argentinita at Lilo andTito Perez respectively. Rock chip samples have returned values of up to 29 g/tAu in oxidized quartz vein material. These deposits are potentially all part ofthe same shear zone, and further mapping during the quarter will be followed upwith drilling to build resources. The re-evaluation of the structural setting in the western portion of the IslaCristalina and a ground magnetic survey over the same area is identifying apriority corridor for exploration between San Gregorio and Argentinita. Samplingand initial mapping at Papagayo, a prospect approximately 5 km west ofArgentinita, has identified mineralization associated with a shallow thrustfault and quartz veins. During the coming quarter more detailed mapping of thedistrict will be performed by the Company's structural geologist to develop aconceptual model for the emplacement of mineralization within the district. Exploration programmes in the Florida and Dom Feliciano Belts were launchedduring the quarter. Mapping and sampling at Presidente Terra has confirmed theexistence of a 7 km mineralized contact shear between meta sediments and graniterock. New areas of gold mineralization and veining have also been discovered.Mapping and sampling at the Crucera project are confirming extensions tomineralized structures and are identifying new veins. Drilling on this target isplanned for the coming quarter. Acquisitions The Company has entered into a farm-in and data acquisition agreement withDelcoSur S.A. for exploration properties within the Florida Greenstone Belt.This transaction provides the Company with a number of advanced explorationtargets, additional information on existing UME prospects such as Casupa, andhistorical regional sampling and interpretation work performed on the FloridaGreenstone belt. This package allows the Company to accelerate exploration workwithin the Florida Greenstone Belt and to invest its future explorationexpenditure more effectively. Initial work on the properties acquired will be focused on the Nueva Helveciaproperty, which is located in the central portion of the Florida Belt. Historicdrilling conducted in 1997 by REA Gold Corp at the Campo Rovaina prospectintercepted 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 acrossthe surface projection of the drill intercept. Channel samples from the trenchaveraged 3.28 g/t Au using a one-gram cut off over a width of 12.8 metres. Thismineralization coincides with a gold soil anomaly approximately 500 metres longand between 50 to 200 metres wide. The central portion of this gold soil anomalycoincides with a 300-metre long arsenic soil anomaly. Non-gold exploration At Lascano, a drill programme is underway to test the magnetic susceptibilityand density of the rock units at various points in the most prominent circularfeature of the anomaly. Two drill holes, one on the rim and a second in thecentre have been completed. A third drill hole on the rim is in progress and iscurrently at approximately 700 metres. Drilling is relatively slow given thedepth of the holes (up to 1,000 metres), the alluvial coverage over the basementrock (50-100 metres), the fact that the drilling is in low-lying, wet areas andthat far more rain has fallen recently than is usual. Dominant rock types encountered to date are diorite to gabbro, quartz feldsparporphyry, and basalt lava flows. In the first hole the more interesting rocksencountered were gabbros to diorites with lenses of granophyre. The rocks inthis hole were not altered except for near surface oxidation. The second holeshowed evidence of iron oxide metasomatism and locally weak (trace) pyrite andchalcopyrite mineralization. This is both interesting and encouraging. Minorclay alteration is associated with this mineralization. Sampling of selectiveintervals has been carried out for trace element chemistry and petrographic workas well as geophysical characteristics. This work will allow the Company tocontinue to develop its conceptual model of the geological setting for theanomaly. At present, the Company is working on two possible geologic models asbeing the cause of the anomalies. One is that large intrusive bodies haveentered the surrounding country rock causing the circular pattern. The second isa volcanic caldera. Significant mineral deposits can be associated with thesetwo model types. The third drill hole will be completed at the end of April with the remainingthree holes expected to be completed over the next three months. Drillingprogress will, however, be dependent on the weather. Assaying, petrographic workand geophysical property analysis will then follow and take another month tocomplete. While analysis is ongoing, the Company expects to define a model,select targets to test for mineralized bodies and decide how to progress thissignificant and unique project in the second half of the calendar year. During the quarter, work continued on the diamond project. Kimberlite indicatorminerals, including pyrope garnets and crome spinels have been obtained fromfollow-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 forfurther work. A detailed ground magnetic survey was performed at one of thepriority areas during the quarter and has confirmed magnetic geophysicalanomalies consistent with geomorphic features and positive soil and streamsediment indicator minerals. Other priority areas will be followed up and aninitial drilling phase is planned for the coming quarter. During the quarter the company acquired Southern Era Diamonds Inc's historicalUruguayan geological database including geochemical sampling, drilling resultsand airborne magnetic surveys. This data will allow UME to accelerate progresson the diamond exploration in Uruguay, supporting its plan to continue to buildvalue 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 resultingfrom improved production volumes and higher average sales prices. Our quarterlyproduction of 27,921 ounces has put us on track to achieve the full yearreforecast of 95,000 ounces. All sales in the current quarter were delivered atspot following the completion of hedge obligations in the previous quarter. Operating cash costs have fallen from $US 345 per ounce for the second quarterto $US 253 for the third quarter, taking the year to date average to $US 303.This reduction has been a function of higher production levels with similarcosts. Operating costs per tonne of material for the quarter are consistent withthe first half of the financial year. \* TReconciliation of cash costs between comparable periods in the 2007 and 2006 financial years$US/Ounce---------------------------------------------------------------------- 9 Months 6 Months to 28 to 31 February November------------------------------------------------------------ ---------Cash cost per ounce 2006 financial year $199 $197Change in strip ratio 20 20Other cost increases 49 47------------------------------------------------------------ ---------Cash cost before impact of lower production 268 264Reduced production from lower grade 35 76------------------------------------------------------------ ---------Cash cost per ounce 2007 financial year $303 $340------------------------------------------------------------ ---------\* T 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 anet cash generation for the quarter of $ 1,994,000. Comparatives for the ninemonth period are shown in the table below. During the current financial year $1,495,000 has been paid in dividends. \* TCashflow Summary 3 Months 9 Months$US 000 to 28 to 28 February February------------------------------------------------------------ --------- Operating cashflows $4,840 $11,737Funds received from equity and debt issues 365 1,447------------------------------------------------------------ --------- 5,205 13,184Invested in property plant and equipment (1,252) (7,628)Invested in exploration (1,959) (5,196)------------------------------------------------------------ --------- 1,994 $360Cash returned to shareholders as dividends - (1,495)------------------------------------------------------------ ---------Net cash generated/(used) $1,994 $(1,135)------------------------------------------------------------ ---------\* T Our Strategy The Company's primary objective is to create shareholder value through growinggold production to become a mid-tier gold producer over five years. The Companyis focused on the key challenge of increasing gold reserves through successfulexploration and alternative mining and processing methods. Accordingly, we haveput in place plans to farm out or divest our base metals and diamond prospectsgoing forward. Production During the quarter the Company reached a key milestone with the granting ofpermits to commence the diversion of the Arroyo Corrales. This milestoneprovides us with increased certainty on our three year mine plans and confirmsthat we will continue to generate the cashflow from operations necessary to fundour exploration investments. We have started work on the diversion, and expectto complete it in July 2007. Senior management team The Company has taken the initial steps in delivering on its growth intentionsby recruiting the necessary members of the exploration and development team.Where possible we have also sought to acquire additional information andprojects that can accelerate the achievement of these objectives. We havefocused over 80 per cent of our exploration effort on known gold projects thathave 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 theleadership of an experienced and enthusiastic geologist. They are focused onexpanding our gold resources. Devin Den Boer is responsible for the IslaCristalina belt, and he has sub-divided it into three areas: the near mine areaaround the San Gregoria mine; the Zapucay/Argentinita area about 40 kilometresfrom the mine; and the eastern end of the belt. Near mine exploration has beenrefocused on targeting resource expansion from the extensive known gold systemwe are currently mining. The Zapucay/Argentinita system is in its early stagesof evaluation with historical production of 30,000 ounces, new resources of95,000 ounces (effective 1 November 2006) and an active exploration programmedefining new mineralised areas along strike. The eastern end of the belt hasreceived very little attention until a few months ago. There are many reasons tobe encouraged with positive results from stream and rock chip samples. Nodrilling has been done to date but it will follow when the targets are betterdefined. We now have one team focused on each of these areas. The second area is the Florida and Dom Feliciano mobile belts that lierespectively to the south and the east of Uruguay. Alex Raab has responsibilityfor these areas. He has a number of teams working on various projects with knownextensive gold mineralisation such as Presidente Terra and Casupa. While theseprojects represent the immediate priority in our objective to define a resource,new targets are generated, reviewed and prioritised at the same time. Ourdecision to farm-in to projects owned by DelcoSur (as announced on 22nd March)and to acquire additional information will accelerate our plans and bettertarget our exploration effort in an important part of the Florida belt. The Board visited Uruguay in February, to understand better the progress onoperations, exploration and development. This visit demonstrated that we aremaking the transition from a consolidation phase, in which our focus was onputting the appropriate people, resources and systems in place, to a developmentphase, characterised by more intensive and more clearly focused fieldexploration activity. With better-qualified technical direction and processes in place, fieldexploration is also now more systematic. All projects are mapped, sampled andtrenched, at reasonable densities, so as to define targets better. During thequarter, over 75% of our exploration efforts focused on these activities and, asa result, we have defined new areas of mineralisation at Argentinita/Zapuchayand Presidente Terra. Management has also sought input from external specialistsfor structure and geophysics and is improving the quality of the explorationprocess. These initiatives are starting to result in better definition of drilltargets, enabling the Board to conclude that the Company's chances ofexploration success in future drill programmes has been greatly enhanced. While the recent exploration focus has been, and will continue to be, on addingincremental ore to reserves and resources, it is clear that we now have the cashand people to continue with generative grassroots programmes at the same time.We are following up historical bleg and other anomalies in the eastern andcentral northern parts of the Isla Cristalina belt and in the Casupa district inthe Florida belt. Indications are that all these areas have the potential tohost significant gold deposits. Other sections of the Company's Management Discussion and Analysis for theperiod explain our work in more detail. Resources and reserves Our intention is to publish annually in August, in conjunction with the fullyear financial statements, an update of the reserves and resources, and inbetween to describe our activities, only updating the announced reserves andresources if the change is material. Accordingly, the next time we will beupdating the published reserves and resources will be August 2007 in conjunctionwith the announcement of the financial results for the full year ending 31st May2007. Non-gold exploration We are continuing to evaluate the best alternatives for realizing value from theCompany's non-gold assets in Uruguay. Interest from international companies inthe base metal and nickel properties is still being received and will beconsidered. A number of international companies are presently reviewing theseprojects and the Company is considering how best to take them forward. Important advances have been made on diamond exploration during the quarter andwe aim to drill test a number of targets in the coming quarters beforere-assessing our divestment options. Our acquisition of the database fromSouthern Era (as announced on 19th March) should reduce our need for sampling insome areas and accelerate the programme. This should enable us to build value inthe project faster than we would otherwise have done, prior to a farm-out or anInitial Public Offering. Additional work will continue to be done on the Lascano project over the nextsix months and we will make an assessment of the best way to develop the projectin the latter part of Calendar 2007. Dividend The interim dividend of C$ 2.0 cents per share announced on 11th January 2007will be paid on 12 April 2007 to shareholders registered on 22 March 2007. Thiswill cost a total of C$ 962,000 and compares with the dividend of C$ 3.5 centsper share paid on 27 October 2006. It is the Board's intention to recommend tothe Annual General Meeting that a final dividend be paid in October 2007. Summary The strong production results during the quarter demonstrate that the Company ismaking up the shortfall from the first half and is on track to produce 95,000ounces for the year. In line with these higher production volumes, unitoperating costs have fallen. Financial performance has also improved with theaverage sales price of gold benefiting from no hedge deliveries. The granting ofapprovals to divert the Arroyo Corrales provides increased certainty for theCompany in achieving its near term objectives and underwrites the cashflowsnecessary to grow the Company in the coming years. Our Board visit to Uruguayduring February confirmed that the management team changes are starting to makean impact with increased exploration and development activity and better focuson delivering resource growth. \* TTony ShearerChairman\* T Qualified Person's Statement The technical information presented in this press release has been reviewed andverified by Mr John Sadek, Vice President Operations and a Mining Engineer, andMr. George Schroer Vice President Exploration and a Certified ProfessionalGeologist. Mr. Sadek and Mr. Schroer are the Qualified Persons for the purposesof the AIM Guidance Note on Mining, Oil and Gas Companies dated March 2006. MrSadek has a Bachelor of Engineering (Mining) from the University of Sydney andis a member of the AusIMM and SME. He has over 20 years of internationalexperience in mining. Mr. Schroer has a Masters of Science in Geology fromColorado State University and is a member of SEG and AIPG. He has over 20 yearsof international experience in exploration. Conference Call Details The management of Uruguay Mineral Exploration inc. will host a conference callto discuss the results at 11.00 EDT, 16.00 BST on Thursday 12th April 2007. Thedial-in numbers are: +44 (0)20 7138 0825 / +1 416 915 1269 and participantsshould quote Uruguay Mineral Exploration. A live audio stream of the conferencecall can also be accessed at www.uruguayminerals.com. Please dial in / log onfive minutes prior to the start of the call to allow time for registration. Arecording of the conference call will be available for 7 days afterwards, fromapproximately 1 hour after the live call has finished, on : +44 (0)20 7806 1970/ +1 718 354 1112, access code:3867642#. A recording will also be available atwww.uruguayminerals.com. ENDS The TSX Venture Exchange has not reviewed and does not accept responsibility forthe adequacy or accuracy of this news release. Editor's note: Uruguay Mineral Exploration Inc. is a gold producer andexploration company focused on identifying and developing mineral opportunitiesin Uruguay. UME is a fully integrated mining company, possessing the skillsnecessary to explore and develop its discoveries. The Company operates the onlyproducing gold mine in the country (San Gregorio), and is also the leadingmineral exploration company in Uruguay having assembled an exploration portfoliobased on gold, base metals (copper, nickel, lead, zinc) and diamond prospects.In the first half of 2003, the Company discovered the Arenal deposit, currentlythe largest known gold resource in Uruguay. Uruguay Mineral Exploration Inc. is quoted in Canada (TSXV) and London (AIM) andCollins Stewart Europe Limited is the Nominated Adviser and broker. For further information, please contact: Uruguay Mineral Exploration Inc Tony Shearer, Chairman +44 20 7602 1570; tonyshearer@btinternet.comDavid Fowler, CEO 598 2 6016354; urumin@ume.com.uy Shared Value LtdEmily Bruning +44 20 7321 5027; ebruning@sharedvalue.net Collins Stewart Europe LtdChris Rollason +44 20 7523 8308; crollason@collins-stewart.com Uruguay Mineral Exploration Inc.Consolidated Interim Financial StatementsFor the three and nine month periods endedFebruary 28, 2007(Unaudited - prepared by management) In accordance with National Instrument 51-102 released by the CanadianSecurities Administrators, the Company discloses that its auditors have notreviewed the un-audited financial statements for the periods ended February 282007. \* T 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 24,788Deferred exploration costs (Note 3) 16,379 11,184 8,308Future income tax 578 1,855 959Deferred 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 1,486Long term debt (Note 5) 1,237 2,167 1,818Asset retirement obligation 1,665 1,665 1,624 -------- ------- --------Total liabilities 11,871 14,769 11,915 Equity instruments (Note 6) 34,587 32,858 31,675Contributed surplus (Note 7) 3,081 1,625 1,694Cumulative 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 ======== ======= ========\* T \* T 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 35,214Net 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 192Dividend 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 0.14Diluted 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======================================================================\* T \* T 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======================================================================\* T 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 bymanagement in accordance with Canadian generally accepted accounting principles.The reporting currency used is the United States dollars which is also theCompany's functional currency. The preparation of consolidated financialstatements in conformity with Canadian generally accepted accounting principlesrequires management to make estimates and assumptions that affect the amountsreported in the consolidated financial statements and accompanying notes. Actualresults could differ from those estimates. The consolidated financial statementshave, in management's opinion, been adjusted to reflect all adjustments requiredto reflect a fair presentation of these statements in accordance with theaccounting policies of the company. These interim consolidated financialstatements should be read in conjunction with the most recent annualconsolidated financial statements for the year ended May 31, 2006 for detailednote disclosures. The significant accounting policies follow that of the mostrecently reported annual consolidated financial statements. 2. Property, Plant and Equipment \* T February 28 2007 ------------------------------ Cost Accumulated Net Book Amortization Value -------- ------------ --------Land and lease rights $1,895 $- $1,895Plant and equipment 23,506 10,986 12,520Mineral properties 15,570 7,515 8,055 -------- ------------ -------- $40,971 $18,501 $22,470 ======== ============ ========\* T \* T May 31 2006 ------------------------------ Cost Accumulated Net Book Amortization Value -------- ------------ --------Land and lease rights $1,895 $ $1,895Plant and equipment 20,362 7,474 12,888Mineral properties 13,218 5,105 8,113 -------- ------------ -------- $35,475 $12,579 $22,896 ======== ============ ========\* T \* T February 28 2006 ------------------------------ Cost Accumulated Net Book Amortization Value -------- ------------ --------Land and lease rights $671 $- $671Plant and equipment 20,605 6,368 14,237Mineral properties 14,066 4,186 9,880 -------- ------------ -------- $35,342 $10,554 $24,788 ======== ============ ========\* T a) On November 30, 2005 a subsidiary of the Company acquired the 10% net profitsinterest over key tenements within the Minas de Corrales Project including thetenements on which the Arenal deposit is located. The total cost of theacquisition was $ 4,246 with $ 3,500 allocated to mineral properties and $ 746allocated to deferred exploration and development costs. The consideration forthe acquisition was 290,000 common shares and $ 3,150 payable in 3 equal annualinstallments of $ 1,050. Terms of the notes are detailed at Note 5(d). Anadditional $ 1,050 is payable to the vendor if the average daily gold price forthe 36 months to 30 June 2008 exceeds $400 per ounce. b) The plant is located on leased land. The lease expires in 2026. No furtherpayments are due on the lease. c) Mineral properties includes development costs incurred to bring a miningproperty into production, develop new ore bodies or develop mining areas inadvance of production, and are capitalized and charge to operations using theunits of production method based on the estimated life of mine. As of 1st ofNovember 2006, the Company reassessed its reserves and resources in a fullycompliance with NI 43-101 requirements and CIM definitions, determining alowered reserve. The change in estimation affected the quarter determining anincrease in amortization of mineral properties, and will be accounted forprospectively resulting in a higher amortization per ounce of production overthe life of the mine. 3. Deferred Exploration and Development Costs \* T February February 28, May 31, 28, 2007 2006 2006 -------- -------- --------Acquisition costs and option payments $775 $775 $1,521Exploration, development and other property costs 13,712 8,853 5,311Capitalized indirect overheads, net of exchange gains 1,892 1,556 1,476 -------- -------- -------- $16,379 $11,184 $8,308 ======== ======== ========\* T a) Prior to October 2006, the Uruguay Mining legislation requested all miningtitles to be supported by guarantees for any environmental rehabilitationrequirements resulting from exploration or mining activities. These guaranteeswere required to be posted by non-title holders. As a result, certain of theCompany's employees, officers and directors had provided personal assets asguarantees. The Company intends to compensate these individuals in the eventthat the guarantee is called. The Company has also agreed to pay a guarantee feeto the individuals at rates advantageous to the Company. This fee is based onthe amount of the guarantee and is negotiated on a case-by-case basis. As of October 2006, regulations for guarantees were changed. This changerequires future guarantees to be provided by a recognized financial institutionor be supported by Uruguayan public bonds or cash deposits in a Uruguayan StateBank. The total guarantees provided at February 28, 2007 were approximately $ 1,890(May 31, 2006 $ 1,390).These relate to potential site restorationresponsibilities associated with exploration activities. The Company has alsoprovided the Uruguayan state with a rehabilitation performance bond for the SanGregorio mine and operations. This obligation is in the amount of $1,500 (May31, 2006, $ 1,500). 4. Deferred Stripping and Other Non Current Assets \* T February February 28, May 31, 28, 2007 2006 2006 -------- ------- --------Refundable deposits $140 $140 $140Capitalized debt issue costs - 145 113Deferred Stripping 5,752 4,438 2,812 -------- ------- -------- $5,892 $4,723 $3,065 ======== ======= ========\* T (a) Deferred Stripping costs Using the deferred stripping accounting method, mining costs associated withwaste rock removed in excess of the life of the mine average are deferred andcharged to operations on the basis of the average strip ratio for the life ofthe 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 be4.34:1. Reevaluation of the strip ratio was then made determining a new ratio of5.59:1. At November 30, 2006 strip ratio applied was 5.75:1 as a result of amarginal increase in ore. As of February 07 same strip ratio estimation wasassumed. The amount charged to operations is therefore subject to management's ability toestimate the stripping ratio over the life of the mine. Any changes to thisestimate could have a material affect on the financial statements. 5. Long Term Debt \* T February February 28, May 31, 28, 2007 2006 2006 -------- ------- --------Drawn debt facilitiesDeferred payment on acquisition of Net profit interest (a) $1,980 $2,905 $2,847Finance lease (b) 445 457 -Deferred payment on equipment (c) - $863 1,161 -------- ------- -------- 2,425 4,225 4,008Less current portion (1,188) (2,058) 2,190 -------- ------- -------- $1,237 $2,167 $1,818 ======== ======= ========\* T \* T February February 28, May 31, 28, 2007 2006 2006 -------- ----------------Available debt facilitiesFinance lease (b) $- $43 $-Deferred payment on equipment (c) - 1,161Working capital facility (d) - 2,000 2,000 -------- ------- -------- $- $2,043 $3,161 ======== ======= ========\* T (a) On May 31, 2006, a subsidiary of the Company signed a financial leasefacility agreement of $ 500 with ABN AMRO N.V. Sucursal Montevideo for thepurchase of light vehicles. The facility is payable in equal monthlyinstallments over a three year period at 180 days LIBOR plus 2.5% rate ofinterest. As of February 28, 2007, $ 445 of the facility has been drawn. (b) On November 30, 2005 a subsidiary of the Company issued three unsecuredconvertible notes with a face value of $ 1,050 pursuant to the acquisitiondetailed at note 2(a). The three convertible notes are payable on or before July30, 2006, July 30, 2007 and July 30, 2008 respectively. Each convertible notecan be converted into 250,000 ordinary shares during a 30 day period prior tothe 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 notconverted into shares. The two remaining convertible notes are shown recorded attheir net present value using an 8.5% discount rate. (c) On August 5, 2004, a subsidiary of the Company signed a sale and purchaseagreement for the purchase of $6,349 in mine equipment amended on June 15, 2005to purchase an additional $ 1,352. The equipment was purchased on deferredpayment terms with an initial payment of 25%, twelve monthly installments equalto 15% and a final balloon payment of 60% 12 months from the date that equipmentis assembled and ready to work. Interest on all balances outstanding accrues atthe 90 day Libor rates plus 4%. As of this date, payments obligations have beenduly fulfilled and no balances remain outstanding. (d) On August 8, 2004, the Company entered into a secured $2,000 interim workingcapital facility with Macquarie Bank Limited. On October 26, 2004 this interimfacility was increased to $3,000. On December 8, 2004 the Company signeddocumentation for a secured financing facility of $6,500 replacing an interimworking capital facility with Macquarie Bank Limited for $ 2,000, at a rate ofLibor plus 2%, and secured by a general floating charge over all of theCompany's assets. As of February 28, 2007, the facility has expired. 6. Equity Instruments (a) Authorized Unlimited number of Common Shares (b) Issued \* TCommon 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 $30,308Issued for stock options exercised 755 904 1,077 1,951Issued for acquisition of NPI (Note 6(d)) - - 290 1,096Issued for mine properties acquisition - - 51 240Issued 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 ================= ================\* T \* TWarrants and convertible notes February 28, 2007 May 31, 2006 Number Amount Number Amount ----------------- ----------------Issued and outstanding, beginning of year 1,000 $188 250 $188Issued 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 ================= ================\* T (1) These costs have been recorded gross of any related tax effect, as theultimate 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 tenementsat the Minas de Corrales Gold Project as described at Note 2(a). Pursuant tothis agreement the Company issued three convertible notes that provide theholder with the option to convert the note, with a face value of $ 1,050, into250,000 ordinary shares. The note may only be converted during a 30 day periodprior to the expiry date. The fair value of the option to convert the notes intoordinary shares was calculated as the difference between the nominal and fairvalue of the notes. The convertible notes expire as follows: \* TOrdinary 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\* T 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) warrantsoutstanding. (d) Employee Stock Options The Company has an option Plan for its officers, directors, employees andconsultants of the Company and its subsidiaries. Options under the plan aretypically granted in such numbers as reflects the responsibility of theparticular optionee and his or her contribution to the business and activitiesof 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 onthe optionee ceasing to be employed by or associated with the Company. The termsof the Plan further provide that the price at which shares may be issued underthe Plan cannot be less than the market price (net of permissible discounts) ofthe shares when the relevant options were granted. The following table summarizes information regarding the Company's outstandingoptions as at February 28, 2007: \* T 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 $3.03Options - granted 1,316 $3.90 - $5.29 $4.47Options - exercised or cancelled (755) $0.4 - $3.0 $1.03 -------Options outstanding, February 28, 2007 3,128 $0.75 - $5.50 $4.12 =======\* T For the purposes of stock based compensation, the fair value of each option wasdetermined on the date of granting using the Black-Scholes option pricing modelwith 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 February28, 2007, the aggregate unamortized fair value of unvested stock options grantedamounted $ 1,202 (May 2006 - $ 722). The following table summarizes information about the stock options outstandingto the officers, directors and staff at February 28, 2007: \* T Outstanding Vested options---------------------------------------------------- ----------------- Weighted Average Weighted Average Remaining ExerciseOptions 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======= ========\* T (e) Earnings per share The reconciliation of basic and diluted earnings per share where relevant are asfollows: \* T Three months ended Nine months ended February 28, February 28, ---------------------- ---------------------- 2007 2006 2007 2006 ---------------------- ----------------------Basic earnings per shareNumeratorNet earnings available to shareholders $3,899 $2,322 $8,217 $6,506DenominatorWeighted average number of shares outstanding 48,451,768 46,708,080 48,168,433 46,387,746Basic earnings per share (cents per share) 0.08 0.05 0.17 0.14\* T \* T Three months ended Nine months ended February 28, February 28, ---------------------- ---------------------- 2007 2006 2007 2006 ---------------------- ----------------------Diluted earnings per shareNumeratorNet earnings available to shareholders $3,899 $2,322 $8,217 $6,506DenominatorWeighted average number of shares outstanding 48,451,768 46,708,080 48,168,433 46,387,746Weighted potential net incremental issue of shares for warrants - 250,000 27,778 250,000Weighted potential net incremental issue of shares from stock options 41,820 2,181,333 147,088 2,120,170Weighted 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 49,507,916Diluted earnings per share (cents per share) 0.08 0.05 0.17 0.13\* T 7. Contributed Surplus The following table summarizes the movements in contributed surplus. \* T February February 28, May 31, 28, 2007 2006 2006 -------- ------- --------Balance, beginning of period $1,625 $1,577 $1,577Issuance of stock options (a) 917 - -Expense for the period 758 536 334Transfer on exercise of options (219) (488) (217) -------- ------- -------- $3,081 $1,625 $1,694 ======== ======= ========\* T (a) On May 2006, the Company committed to the issue of 421,000 options to theretiring CEO. A stock compensation expense for $ 917 was recorded on May 2006against a liability for the commitment of the shares issue. As of this date,shares have been issued and the liability has been recorded as contributedsurplus. 8. Segmented Information The Company has three reportable segments: Gold, exploration and corporate. Thecorporate segment is responsible for corporate financing and other businessdevelopment activities for the Company. The Gold segment operates the SanGregorio Gold Project and the exploration segment is devoted to the acquisitionand exploration of mineral properties. The gold and exploration segments operatesolely in Uruguay. Precious metals are refined and sold in Europe. \* T February 28 2007 Gold Exploration Corporate Total -------- ----------- --------- ---------For the 3 months endingSales $16,606 $- $- $16,606Amortization and depreciation $(2,331) $- $ $(2,331)Net income (loss) $4,895 $(611) $(385) $3,899 For the 9 months endingSales $41,216 $- $- $41,216Amortization and depreciation $(6,255) $- $ $(6,2,55)Net income (loss) $10,838 $(1,583) $(1,038) $8,217 As at February 28Property, plant and equipment $19,608 $1,627 $1,235 $22,470Deferred exploration $- $16,379 $- $16,379\* T \* T February 28 2006 Gold Exploration Corporate Total -------- ----------- --------- ---------For the 3 months endingSales $12,167 $- $- $12,167Amortization and depreciation $2,174 $7 $- $2,181Net income (loss) $2,789 $- $(467) $2,322 For the 9 months endingSales $35,214 $- $- $35,214Amortization and depreciation $6,477 $20 $- $6,497Net income (loss) $8,020 $(474) $(1,040) $6,506 As at February 28Property, plant and equipment $24,621 $157 $10 $24,788Deferred exploration $- $8,308 $- $8,308\* T 9. Supplementary cash flow information \* T Three months Nine months ended ended February February 28 28Net 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) - - - -\* T (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 theseinstruments and the Company's operations expose the Company to commodity pricerisk, currency risk, credit risk, and fair value risk. The Company uses financial derivatives to mitigate the effect of certain risksthat are inherent in its business. As at February 28, 2007 the Company hasalready cancelled all of its gold option contracts it has entered in the past toreduce its exposure to fluctuations in the gold price. For these contracts the fair value was calculated using the spot price at periodend, expected future prices and volatilities. The nature and level of thesecontracts are such that they offer a degree of downside protection whileallowing the company some participation in price appreciation. The fair value ofthese contracts is noted below. The net value of these contracts has beenrecorded as a liability. \* T February February 28, May 31 28 2007 2006 2006 -------- -------- --------Gold put options $- $- $5Gold call options - (2,317) (2,219)Gold spot deferred contract - - (315) -------- -------- -------- $- $(2,317) $(2,529) ======== ======== ========\* T Copyright Business Wire 2007