Orosur Mining Regulatory News (OMI)

11 Jan 2007 07:00

URUGUAY MINERAL EXPLORATION INC ANNOUNCES RESULTS FOR THE QUARTER AND SIX MONTHS ENDED NOVEMBER 30, 2006 Summary of Results -- Gold production was 20,059 ounces for the second quarter with half year production of 39,234 ounces, consistent with the revised target of 39,000 stated in the Company's November 7, 2006 press release. Production for December was 9,250 ounces; consistent with the Company's reforecast of 95,000 ounces for the full year. -- Cash costs were $US 345 per ounce for the second quarter and $US 340 for the first half compared to $US 182 and $US 197 for the corresponding quarter and half of the prior financial year. The increase in costs comes from lower production, a higher strip ratio and unit cost increases. -- Net profit after tax for the second quarter was $ 1,751,000 or $ 0.036 basic earnings per share with half year net profit of $ 4,318,000 or $0 .090 basic earnings per share. -- Cash flow from operations before non-cash working capital movements was $ 3,677,000 for the second quarter and $ 7,180,000 for the first half. -- The higher average realized gold price for the second quarter of $ 565 per ounce resulted in increased sales of $ 12,433,000 when compared to the second quarter of the prior financial year, with an average sales price of $ 456 per ounce and sales of $ 11,326,000. -- An interim dividend of C$2.0 cents per share will be paid in April 2007. Tony Shearer, Chairman commented: "The Board believes that Uruguay is a highlyprospective country and today we have a team with the right skills and the rightattitudes. The period June to September has been one of significant change andwe have brought together a strong Management team under our new Chief ExecutiveDavid Fowler with two new external recruits, respectively as VP of Explorationand CFO, and an internal promotion to VP of Operations. This new team has hadlittle time to make an impact on reserves and resources as at 1st November,2006. They have focused their effort on completing new estimates of Measured andIndicated resources using independent consultants. The decision to appointindependent consultants was taken by the new management team in July and has ledto more conservative assumptions with an overall reduction in total statedreserves and resources. In the half year the new Management team has alsocarried out essential work which will enable us in 2007 to convert furtherresources into reserves, and to expand the declared resources. Exploration anddevelopment work is intense, painstaking and challenging: the team will needtime to deliver results. I am confident that they will do so." \* T Q2 2007 Q2 2006 H1 2007 H1 2006 ----------------------------------------Operating ReviewGold produced Ounces 20,059 25,323 39,234 50,486Average cash cost US$/oz 345 182 340 197Average price received US$/oz 565 456 566 443 ------------------------------------------------------------------------------------- Financial ReviewRevenue US$ '000s 12,433 11,326 24,610 23,047Net income (loss) for the period US$ '000s 1,751 1,944 4,318 4,184Cash flow from operations* US$ '000s 3,677 5,121 7,180 9,310Basic earnings per share US$ 0.036 0.042 0.090 0.091-------------------------------------------------------------------------------------\* T * before non-cash working capital movements Summary of Significant Events External consultants appointed to evaluate Reserves and Resources Golder Associates and Mine Development Associates were appointed in July 2006 toconduct an independent evaluation of reserves and resources following theappointment of David Fowler as Chief Executive. At 1 November 2006 totalreserves were 5,671,000 tonnes at 1.77 g/t (322,000 contained gold ounces) andMeasured and Indicated Resources, inclusive of reserves, were 13,591,000 tonnesat 1.51 g/t (659,400 ounces). At the same date there was an Inferred Resource of5,619,000 tonnes at 1.4 g/t (250,800 ounces). The previous disclosure as at 1stJune 2005 had total reserves of 5,400,000 tonnes at 2.41 g/t (417,000 ounces)with Measured and Indicated Resources, inclusive of reserves, being 12,500,000tonnes at 1.94 g/t (780,300 ounces). The Inferred Resource as at 1st June 2005was 12,975,000 tonnes at 1.23 g/t (513,000 ounces). The reduction in resourcesrelates to ore mined between June 2005 and November 2006, the use of moreconservative and robust parameters relating to grades in the current resourceestimates, and a significant reduction of Inferred Resources for Sobresaliente(215,000 ounces at 31 May 2005) due to new drilling and Zapuchay (115,000 ouncesat 31 May 2005) where it was considered that additional exploration work isrequired to justify the inferred resource. UME now unhedged The Group is unhedged as the last hedge contract was filled in November 2006. At30 November 2006 the Group had $ 5,802,000 of cash and $ 2,319,000 of interestbearing convertible debt. Diversion of the Arroyo Corrales A public hearing to evaluate the diversion of the Arroyo Corrales was completedduring November 2006. Review of the project by the relevant authorities isnearing completion and the company anticipates approval of the project in thecoming month. A revised project plan based on this schedule has been prepared toallow for continued ore supply from Arenal throughout 2007. New appointments Pablo Ferrari has been appointed to the position of Chief Financial Officer andwill commence employment at UME at the beginning of February 2007. Terry Butlerwas promoted to the position of Operations Manager during the quarter. Increasing Gold Resources Drilling at Argentinita has defined an initial Indicated Resource of 1,446,000tonnes at 1.45 g/t (68,000 ounces) and an Inferred Resource of 588,000 tonnes at1.42 g/t (27,000 ounces). Additional step out drilling along strike and down dipis planned for the coming half to expand this resource. Mine planning in thecoming half will focus on defining a reserve at Argentinita by mid 2007. Ausenco has been appointed to evaluate process plant expansion and heap leachprocessing with scoping studies expected to be completed in the current quarterwith metallurgical testing then progressing immediately thereafter. GolderAssociates has been appointed to evaluate the potential for underground mining. A detailed ground magnetic survey covering the western portion of the IslaCristallina, including the San Gregorio and Argentinita districts, and anevaluation of the structural setting will be used to more effectively targetexploration activities in the San Gregorio/Arenal and Argentinita/Zapucaydistricts in the coming half. A detailed ground magnetic survey at Casupa has identified extensions to thestructure to the North-West and South East of the previously drilledmineralization. The next phase of drilling to confirm the extent ofmineralization along this structure will commence during the third quarter. During the quarter the Company applied for a claim over the Mahoma property inthe Florida Belt. This property previously produced approximately 68,000 tonnesat 7g/t grade between 1992 and 1996. There are currently four known quart veinsat Mahoma, the largest of which extends for approximately 1,000 metres.Evaluation of the project will commence in the second half. Non-gold exploration Stratigraphic drilling has commenced at the Lascano project with the first holeat 530 metres. No mineralization has been encountered to date. Completion of thefirst hole and the drilling of two more holes, together with modeling of theresults is expected to be reported in the third quarter report to be released inmid April. Chairman's Statement Our half-year results to 30 November 2006 report a similar profit to the priorfinancial year, but are attributable to higher average sales prices from lowerproduction during the half. Our December production of 9,250 ounces confirmsthat we are on track to lift our production in the second half to achieve thefull year reforecast of 95,000 ounces. We filled the last open hedge contract inNovember, and the Company is now unhedged with no net debt. \* T Reconciliation of Cash Costs H1 2007 to H1 2006 $US/OunceCash cost per ounce H1 2006 $197Change in strip ratio $20Other cost increases $47--------------------------------------------------------------Cash cost before impact of lower grades $264Reduced production from lower grade 76--------------------------------------------------------------Cash cost per ounce H1 2007 $340--------------------------------------------------------------\* T Operating costs have increased to $340 for the half-year compared with $197 forthe corresponding prior year period. A reconciliation of the variance betweenthe two cash cost numbers is shown above. This demonstrates that $76 of the costincrease for the half was attributable to lower production of 39,234 ouncesresulting from lower grades, and that the higher strip ratio being used in thecurrent financial year accounts for the remaining difference, along with othercost increases that are further discussed in the Group's Management Discussionand Analysis for 30 November 2006. Our Strategy The company has redefined its strategy to focus on creating shareholder valuethrough growing gold production. Initially we aim to maintain production atapproximately 100,000 ounces per annum, and then to grow into a mid-tier goldproducer over five years. Setting these objectives means that we are now focusedon the key challenge of increasing gold reserves, through successful explorationand alternative mining and processing methods. Accordingly, we have put in placeplans to farm out or divest our base metals and diamond prospects going forward. We have prepared data packages for the base metal projects and sent these out tointerested parties. Between now and March 2007 we will be assessing the level ofinterest and deciding how to progress these opportunities. Additional work onthe most prospective of our diamond areas is planned for the current quarter andwe are following a similar approach of looking for a farm in partner. Senior Management Changes Over the past six months, UME has made significant changes to its managementteam with a younger, committed team ready to take the Company to the next stageof its development. David Fowler was appointed Chief Executive Officer on 15 May2006 and on 15 July 2006, George Schroer joined as Vice President ofExploration. We have recently appointed Pablo Ferrari as our new Chief FinancialOfficer with effect from 1 February 2007. Pablo has previously worked in seniorfinancial positions for leading energy companies in Argentina. Terry Butler waspromoted during the half year to Operations Manager, where he has assumedday-to-day control of San Gregorio, allowing John Sadek, as Vice President ofOperations, to focus on our development and growth. We have now filled all theremaining vacant senior management positions with the Group. Management and workforce A key element in our ability to achieve our growth strategy for our goldbusiness will be our ability to keep costs down and to train and develop ourworkforce to increase operational effectiveness. As a result, during the half weembarked on the first stage of a senior management training programme andcompleted an evaluation of workforce's skills and training needs. We have alsobegun to take advice from specialist industry consultants to help us improve ouroperating practices and to transfer skills to local managers. Resources and reserves Golder Associates and Mine Development Associates were appointed in July 2006 toconduct an independent evaluation of reserves and resources following theappointment of our new Chief Executive and his implementation of evaluationpolicies on a more conservative basis. At 1 November 2006 UME had Measured and Indicated Resources of 13,591,000 tonnesat 1.51 g/t, equal to 659,400 contained gold ounces. This compares to 12,500,000tonnes at 1.94 g/t equal to 780,300 ounces of contained gold announced in thelast statement published as at 1 June 2005. In the same period, InferredResources have reduced from 12,975,000 tonnes at 1.23 g/t (513,000 ounces) to5,619,000 tonnes at 1.4 g/t (250,800 ounces). The major reasons for the fall arethe 325,000 ounce reduction in Inferred Resources for Sobresaliente and Zapuchayand material mined during the intervening period. In estimating the November 1, 2006 resource, consideration has been given to thenew exposure draft on Inferred Resources published by the Australian Joint OreReserves Committee in August of 2006. The exposure draft significantly tightensthe definition of material that can be classified as inferred resources. AtSobresaliente a new Indicated and Inferred resource with significantly lowertonnes was estimated following drilling and re-assessment of the geologicalmodel for the deposit. At Zapuchay it was determined that additional work wasrequired to confirm the inferred resources and until this was performed theyshould be removed. We regard the area around Zapuchay and Argentinita asparticularly promising, and whilst it is disappointing that at this stage wecannot include much resource from it, we are concentrating on developing itsresources. This independent estimation has provided valuable input into the potential ofeach of the deposits and the steps needed to convert resources to reserves. Overthe coming year we will focus on completing the studies and further explorationto advance this objective. In recognition of the level of specialist expertise required to prepare reserveand resource information, the Board has decided to form a Reserves and ResourcesCommittee during the coming half. Bill Lindqvist's considerable experience inthis area makes him ideal to lead the committee and more specifically to defineits remit. Exploration to extend resources Over the past six months we have focused on ensuring that we have the people,equipment, data and supplier resources to deliver on our objectives. Specificobjectives for project areas have been established, responsibilities for projectareas have been clearly assigned to senior geologists and support services suchas drilling have been set up as separate functions. While the past 6 months has been a period of consolidation, I am pleased toreport that George Schroer is bringing a new level of professionalism to theexploration process and is building a strong team to accelerate progress. Wehave managed to recruit two experienced expatriate geologists (one to work inthe eastern part of the Isla Cristallina belt, and one to work in the Floridaand Dom Feliciano belts) to complement our developing Uruguayan staff. We haveadvanced considerably in how we collect, organise and use our data and have madeimportant progress in improving quality assurance processes and planning workprogrammes for the 2007 calendar year. Drilling in the current half was focused on infill drilling of resources, ratherthan expansions. This should progressively change over the next half with thefocus changing to resource expansion and testing of new targets. A new diamonddrill rig was delivered in the second quarter and is now fully operational andwe expect to commission a second DM45 reverse circulation drill rig this month.Progressively during 2007 we will also look to increase production from ourdrill fleet by working a second shift. The key to new success in the Isla Cristallina belt is to understand themineralising events that originally created the gold deposits in the belt and tolook for the structures that are consistent with these mineralising events. Avery experienced independent structural Geologist, Rod Holcombe has beencontracted to help us with this evaluation and he completed his first 3 weekfield visit in November. Concurrently we also started a detailed ground magneticsurvey over the western portion of the belt. Both of these initiatives willprovide new information and ideas that will be critical to renewed success in2007. Active gold exploration programmes on the eastern half of the Isla Cristallinabelt, the Florida belt and the Dom Feliciano belt restarted during the half.While work to date has focused on data compilation and reconnaissance it willprogressively change during 2007 as we start to drill test some of key projectssuch as Crucera and Presidente Terra. The work to drill three holes at Lascano has started and we expect to announceour initial findings in the third quarter report due to be released in midApril. The Lascano anomaly covers a very large area of ground, approximately 70kilometres by 30 kilometres. Accordingly the initial drill holes are targeted atstratigraphic information, not mineralisation. This information we collect willconfirm the nature of geographical structures and the types of rocks that arecausing the anomaly to enable us to refine our conceptual model. Dividend It is the Company's intention to declare an interim dividend of C$2.0 cents pershare which will be paid on 12 April 2007 to shareholders on the register on 22March 2007. This will cost a total of C$ 962,000 and compares with the dividendof C$3.5 cents paid on 27 October 2006. It is the Board's intention to recommendto the Annual General Meeting that a final dividend is paid in October 2007. Summary Tony Shearer, Chairman commented: "The Board believes that Uruguay is a highlyprospective country and today we have a team with the right skills and the rightattitudes. The period June to September has been one of significant change andwe have brought together a strong Management team under our new Chief ExecutiveDavid Fowler with two new external recruits, respectively as VP of Explorationand CFO, and an internal promotion to VP of Operations. This new team has hadlittle time to make an impact on reserves and resources as at 1st November,2006. They have focused their effort on completing new estimates of Measured andIndicated resources using independent consultants. The decision to appointindependent consultants was taken by the new management team in July and has ledto more conservative assumptions with an overall reduction in total statedreserves and resources. In the half year the new Management team has alsocarried out essential work which will enable us in 2007 to convert furtherresources into reserves, and to expand the declared resources. Exploration anddevelopment work is intense, painstaking and challenging: the team will needtime to deliver results. I am confident that they will do so." \* TTony ShearerChairman\* T \* T Statement on Reserves and Resources\* T Uruguay Mineral Exploration Inc. (UME) discloses the following update of itsMineral Resources and Mineral Reserves as at 1 November 2006. These MineralResources and Mineral Reserves, as well as the terms used in this disclosure,are fully compliant with NI 43-101 requirements and CIM Definition Standards. \* T UME Mineral Resources as at 1 November 2006 +---------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------- Cut-Off (g/t Grade (g/t NoteDeposit Au) Tonnes Au) Contained Ounces----------------------------------------------------------------------------------------------Measured Resources Arenal 0.5 1,204,000 2.58 100,000 2 San Gregorio 0.5 278,000 0.94 8,300 2 Santa Teresa 0.5 497,000 1.14 18,200 2----------------------------------------------------------------------------------------------Total Measured Resources 1,979,000 1.99 126,500----------------------------------------------------------------------------------------------Indicated Resources Arenal 0.5 5,741,000 1.51 279,100 2 San Gregorio 0.5 1,850,000 1.50 89,000 2 Santa Teresa 0.5 1,434,000 1.09 50,200 2 Omb£ 0.5 687,000 1.33 29,400 1 Argentinita 0.5 1,446,000 1.45 67,400 1 Sobresaliente 0.7 431,000 1.16 16,100 1 Stockpiles 0.5 23,000 2.11 1,600 3----------------------------------------------------------------------------------------------Total Indicated Resources 11,612,000 1.43 532,800----------------------------------------------------------------------------------------------Total Measured & Indicated 13,591,000 1.51 659,300----------------------------------------------------------------------------------------------Inferred Resources Arenal 0.5 2,983,000 1.1 107,000 2 San Gregorio 0.5 115,000 1.9 6,900 2 Rieles/East Extension 0.5 1,545,000 1.6 78,200 3 Santa Teresa 0.5 7,000 0.8 200 2 Omb£ 0.5 38,000 0.90 1,100 1 Argentinita 0.5 588,000 1.42 26,800 1 Sobresaliente 0.7 61,000 0.92 1,800 1 Vetas 0.5 282,000 3.2 28,700 3----------------------------------------------------------------------------------------------Total Inferred Resources 5,619,000 1.4 250,700----------------------------------------------------------------------------------------------\* T \* T UME Mineral Reserves as at 1 November 2006 +•---------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------Deposit Cut-Off (g/t Tonnes Grade (g/t Contained Ounces Note Au) Au)----------------------------------------------------------------------------------------------Proven Reserves Arenal 0.5 1,128,000 2.57 93,200 4 San Gregorio 0.5 156,000 0.94 4,700 4 Santa Teresa 0.5 269,000 1.24 10,700 4----------------------------------------------------------------------------------------------Total Proven Reserves 1,553,000 2.18 108,600----------------------------------------------------------------------------------------------Probable Reserves Arenal 0.5 2,249,000 1.8 128,800 4 San Gregorio 0.5 1,059,000 1.6 53,800 4 Santa Teresa 0.5 787,000 1.2 29,200 4 Stockpiles 0.5 23,000 2.1 1,600 4----------------------------------------------------------------------------------------------Total Probable Reserves 4,118,000 1.6 213,400----------------------------------------------------------------------------------------------Total Mineral Reserves 5,671,000 1.77 322,000 5---------------------------------------------------------------------------------------------- Notes:+ - Totals may not be exact due to rounding• - Mineral Reserves are completely within the stated Mineral Resources with mining factors applied.1 - Qualified Persons: Steven Ristorcelli (C.P.Geo) of Mine Development Associates (MDA) and Peter Ronning (P.Eng) an associate of MDA.2 - Qualified Person for Mineral Resources: Dr William John Shaw of Golder Associates3 - Qualified Person for Mineral Resources: George Schroer of UME Inc.4 - Qualified Person for Mineral Reserves: John Sadek of UME Inc.5 - Mineral Reserves include 2.6Mt @ 1.9gpt that are contingent upon governmental permission to divert the Corrales Stream.\* T UME will publish a Technical Report and supporting reference documents within 45days in accordance with NI 43-101 requirements. Highlights of the updated Mineral Resources and Mineral Reserves: -- UME has engaged new independent consultants to estimate all significant Mineral Resources. -- The current update represents an increase in combined Measured and Indicated Resources of 1,965,000 tonnes since the previous, corrected position. -- The independent consultants have applied more conservative classifications in comparison to those previously applied by UME. Although mineralization exists at Castrill£n, it has been removed since it is not material to the Company's position. Zapucay Inferred Resource has been removed pending addition exploration. The Sobresaliente Inferred Resource has undergone significant reduction following additional exploration that invalidated the previous geological conceptual model. -- Since the last disclosure (June 2005), 98,700 tonnes at 2.60 gpt have been mined and processed from Vetas in the San Gregorio operations. Ore from these supplemental sources will continue into the near future and their current estimate is listed as an Inferred Resource. It is anticipated that these sources will never receive sufficient geoscientific evaluation to convert them to higher categories of Resources or to Reserves prior to excavation. -- Since the last disclosure total Mineral Reserves have increased by an equivalent 271,000 tonnes despite actual production of 1,795,000 tonnes. The replaced grade, however is lower than previous averages. -- As shown in Note 5 of the Mineral Reserves tabled above, approximately 2.6Mt of ore at Arenal are only available with the diversion of a small section of Arroyo Corrales. All ministerial submissions were finalised during 2006 and the public review process has completed without formal objections. Government ministries and the local community are strongly supportive of this expansion. Permission to commence this diversion is anticipated within the next two months. -- A gold price of US$450 per ounce has been used in the estimation of Mineral Reserves. 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. Schroer is the Qualified Person for the purposes of the AIMGuidance Note on Mining, Oil and Gas Companies dated March 2006. Mr. Schroer hasa Bachelor of Science in Geology from Colorado State University and is a memberof SEG and AIPG. He has over 20 years of international experience inexploration. Mr. Sadek is the Qualified Person for the purposes of the AIMGuidance Note on Mining, Oil and Gas Companies dated March 2006. Mr Sadek has aBachelor of Engineering (Mining) from the University of Sydney and is a memberof the AusIMM and SME. He has over 20 years of international experience inmining. Conference Call Details The management of Uruguay Mineral Exploration inc. will host a conference callto discuss the results at 11.00 EST, 16.00 GMT on Thursday 11th January 2007.The dial-in numbers are: +44 (0)20 7365 1851 / +1 514 315 1009 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 after theconference call, commencing approximately 1 hour after the live call hasfinished, on : +44 (0)20 7806 1970 / +1 718 354 1112, access code: 9587124#. Arecording will also be available at www.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 focussed 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 Limited is the Nominated Adviser and broker. For further information, please contact: \* TUruguay Mineral Exploration IncTony Shearer, Chairman 44 20 7221-9983; tonyshearer@btinternet.comDavid Fowler, CEO 598 2 6016354 urumin@adinet.com.uyShared Value LtdEmily Bruning +44 20 7321 5027; ebruning@sharedvalue.netCollins Stewart LtdChris Rollason +44 20 7523 8308; crollason@collins-stewart.com\* T Uruguay Mineral Exploration Inc.Consolidated Interim Financial StatementsFor the six month period ended November 30, 2006(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 unaudited financial statements for the period ended 30 November2006. \* T ContentsConsolidated Balance Sheets 10Consolidated Statements of Income and Retained Earnings (Deficit) 11Consolidated Statements of Cash Flows 12Notes to Consolidated Financial Statements 13 - 22\* T \* T Uruguay Mineral Exploration Inc. Consolidated Balance Sheets (Unaudited) (Thousands of United States Dollars, except where indicated) As at As at As at November 30, May 31, November 30, 2006 2006 2005----------------------------------------------------------------------------------------------------Assets $ $ Current assets Cash and cash equivalents 5,802 8,931 6,287 Accounts receivable 3,446 1,699 2,777 Inventories 9,037 8,108 7,360 Prepaid expenses and other 725 612 824 ------------------------------------------------ 19,010 19,350 17,248 Property, plant and equipment (Note 2) 23,473 22,896 24,428Deferred exploration costs (Note 3) 14,603 11,184 6,973Future income tax 42 1,855 934Deferred stripping and other non current assets (Note 4) 5,597 4,723 2,335 ------------------------------------------------Total assets 62,725 60,008 51,918 ================================================ Liabilities and Shareholders' Equity Current liabilitiesAccounts payable and accrued liabilities 6,628 5,076 4,711Current portion of long term debt (Note 5) 1,239 2,058 4,901Unrealized fair value of derivatives (Note 10) - 2,317 1,592 ------------------------------------------------ 7,867 9,451 11,204 Future income tax liabilities 1,486 1,486 -Long term debt (Note 5) 1,080 2,167 2,876Asset retirement obligation 1,665 1,665 1,602 ------------------------------------------------Total liabilities 12,098 14,769 15,682 Equity instruments (Note 6) 34,152 32,858 30,310Contributed surplus (Note 7) 2,896 1,625 1,569Cumulative translation adjustment (19) (19) (19)Retained Earnings / (Deficit) 13,598 10,775 4,376 ------------------------------------------------Total Shareholders' Equity 50,627 45,239 36,236 ------------------------------------------------Total Liabilities and Shareholders Equity 62,725 60,008 51,918 ================================================\* T The accompanying notes are an integral part of these consolidated interimfinancial statements \* T Uruguay Mineral Exploration Inc. Consolidated Statements of Income and Retained Earnings (Unaudited) (Thousands of United States Dollars, except where indicated) Three months ended Six months ended November 30 November 30 2006 2005 2006 2005------------------------------------------------------------------------------------------------------ $ $ $ $Sales 12,433 11,326 24,610 23,047Net profit interest - (329) - (635) -------------------------------------------------------------Net Sales 12,433 10,997 24,610 22,412 Operating expenses 7,676 4,970 14,425 10,730 Amortization, depletion and accretion 1,909 2,567 3,924 4,316 Other expenses Compensation expense - stock based 229 158 480 158 Fair value adjustment for derivatives (1,070) 1,215 (2,317) 1,412 General and administrative 1,053 655 1,989 1,247 Interest and financing fees 82 81 170 174 ------------------------------------------------------------- 294 2,109 322 2,991 -------------------------------------------------------------Income before other items and taxes 2,554 1,351 5,939 4,375 Other items Gain on settlement of net profit interest - 888 - 888 Interest and other income/(expense) 146 (130) 237 (98) Foreign exchange loss (95) (28) (158) (46) -------------------------------------------------------------Income before taxes 2,605 2,081 6,018 5,119 -------------------------------------------------------------Income taxes 854 137 1,700 935 Net income for the period 1,751 1,944 4,318 4,184 -------------------------------------------------------------Retained earnings, beginning of period 13,342 2,432 10,775 192Dividend distribution (1,495) - (1,495) -Retained earnings, end of period 13,598 4,376 13,598 4,376------------------------------------------------------------------------------------------------------ Basic earnings per share (Note 6(e)) 0.036 0.042 0.090 0.091Diluted earnings per share (Note 6(e)) 0.036 0.039 0.089 0.085 Basic weighted average no. of shares 48,081,935 46,263,746 48,026,766 46,227,580Diluted weighted average no. of shares 48,689,642 49,889,413 48,634,766 49,507,913------------------------------------------------------------------------------------------------------\* T \* T Uruguay Mineral Exploration Inc. Consolidated Statements of Cash Flows (Unaudited) (Thousands of United States Dollars, except where indicated) Three months ended Six months ended November 30 November 30 2006 2005 2006 2005 -------------------------------------------------------------- $Operating activities Net income for the period 1,751 2,106 4,318 4,346 Adjustments for: Amortization, depletion and accretion 1,909 2,567 3,924 4,316 Future income taxes 1,588 (393) 1,814 405 Deferred stripping (659) (646) (1,013) (1,441) Fair value adjustment of derivatives (1,070) 1,215 (2,317) 1,412 Compensation expense - stock based 229 158 480 158 Other (71) 114 (26) 114 -------------------------------------------------------------- 3,677 5,121 7,180 9,310 Net change in non-cash working capital balances (Note 9) (5) (2,327) (283) (1,996) -------------------------------------------------------------- 3,672 2,794 6,897 7,314 -------------------------------------------------------------- Financing activities Proceeds from the issue of share capital, net of costs 17 36 1,168 204 Payments of finance lease (54) - (86) - Dividend payment (1,495) (1,495) -------------------------------------------------------------- (1,532) 36 (413) 204 -------------------------------------------------------------- Investing activities Refundable deposits - (3) - (3)Purchase of property, plant and equipment (3,022) (3,585) (6,421) (6,252) Payments for deferred exploration (1,861) (687) (3,237) (1,127) Proceeds on sale of assets - 350 45 650 -------------------------------------------------------------- (4,883) (3,925) (9,613) (6,732) -------------------------------------------------------------- Increase (decrease) in cash (2,743) (1,095) (3,129) 786 Cash and cash equivalents, beginning of period 8,545 7,382 8,931 5,501 -------------------------------------------------------------- Cash and cash equivalents, end of period 5,802 6,287 5,802 6,287\* T Uruguay Mineral Exploration Inc.Notes to Consolidated Interim financial Statements(Unaudited)(Thousands of United States Dollars, except where indicated) November 30, 2006 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. (a) Deferred Stripping Costs Using the deferred stripping accounting method mining costs associated withwaste rock removed in excess of the life of 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. During the period the strip ratio was revised to 5.59:1. The waste toore ratio and the remaining life of the mine are both regularly assessed bymanagement to ensure the carrying value and rates of depletion are appropriate. The amount charged to operating costs is therefore subject to management'sability to estimate the stripping ratio over the life of mine. Any changes tothis estimate could have a material affect on the financial statements. 2. Property, Plant and Equipment \* T November 30,2006 ---------------------------------------------------- Cost Accumulated Net Book Amortization Value ----------------- ---------------- -----------------Land and lease rights $2,030 - $2,030Plant and equipment 22,885 9,721 13,164Mineral properties 14,778 6,499 8,279 ----------------- ---------------- ----------------- $39,693 16,220 $23,473 ================= ================ =================\* 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 November 30 2005 ---------------------------------------------------- Cost Accumulated Net Book Amortization Value ------------------ --------------- -----------------Land and lease rights $671 - $671Plant and equipment 12,880 1,349 11,531Mineral properties 7,423 194 7,229 ------------------ --------------- ----------------- $20,974 1,543 $19,431 ================== =============== =================\* T (a) During October 2005, the Company acquired the 10% net profit interest overkey tenements within the Minas de Corrales project, including the tenement onwhich Arenal deposit is located. This agreement terminates UME's obligation topay the NPI holder 10% of the net profits derived from gold produced from theNPI area as part of the acquisition of the tenements. An amount of $ 3,500 isshown under mineral properties and is amortized using the unit of productionmethod based on the estimated life of mine. Another $ 383 is included underDeferred Exploration and is not being amortized as they are related to keytenements in exploration areas with no determined resources. (b) The plant is located on leased land. The lease expires in 2026. No furtherpayments are due on the lease. Included in plant and equipment is $ 835 (May2006 - $782) of spare parts that are amortized over 5 years. Included in mineralproperties is $ 2,773 (May 2006 - $1,355) of mine development costs that havenot yet been amortized as these are pre-stripping and development costs fordeposits from which production has not commenced. 3. Deferred Exploration Costs \* T November 30, May 31, November, 30 2006 2006 2005 --------------------------------------------Acquisition costs and option payments $775 $775 $1,521Exploration, development and other property costs 12,022 8,853 $4,027Capitalized indirect overheads, net of exchange gains 1,806 1,556 $1,425 -------------------------------------------- $14,603 $11,184 $6,973 ============================================\* T a) The Uruguay Mining legislation requires all mining titles to be supported byguarantees for any environmental rehabilitation requirements resulting fromexploration or mining activities. These guarantees are required to be posted bynon-title holders. As a result, certain of the Company's employees, officers anddirectors have provided personal assets as guarantees. The Company intends tocompensate these individuals in the event that the guarantee is called. TheCompany has also agreed to pay a guarantee fee to the individuals at ratesadvantageous to the Company. This fee is based on the amount of the guaranteeand is negotiated on a case-by-case basis. The total guarantees provided atNovember 30, 2006 were approximately $ 1,125 (May 31, 2006 $ 1,390). Theserelate to potential site restoration responsibilities associated withexploration activities. In addition, as a consequence of the acquisition of theSan Gregorio mine, the Company has assumed full responsibility for therehabilitation of the mining site. This obligation is supported by arehabilitation guarantee of $1,500. The Company's current site restoration liability in respect of its explorationactivities is not material. 4. Deferred Stripping and Other Non Current Assets \* T November 30, May 31, November 30, 2006 2006 2005 --------------------------------------------------Refundable deposits $139 $140 $143Capitalized debt issue costs 7 145 183Deferred Stripping 5,451 4,438 2,009 -------------------------------------------------- $5,597 $4,723 $2,335 ==================================================\* T Costs and fees relating to the secured financing facility have been capitalizedand will be amortized over the life of the facilities, commencing December 1,2004. 5. Debt \* T November 30 May 31, November 30 2006 2006 2005 --------------------------------------------------Drawn debt facilitiesDeferred payment on equipment (a) - $863 $3,893Deferred payment on acquisition of Net profit (b) 1,938 2,905 3,884Finance lease (c) 381 457 - -------------------------------------------------- 2,319 4,225 7,777Less non current portion (1,080) (2,167) (2,876) -------------------------------------------------- 1,239 2,058 $4,901 ==================================================\* T \* TAvailable debt FacilitiesWorking capital facility (d) $ 2,000 $2,000Deferred payment on equipment - - 3,893Finance Lease (c) 43 43 - ================================================= $43 2,043 $5,893 =================================================\* T (a) On August 5, 2004, a subsidiary of the Company signed a sale and purchaseagreement with Komatsu Latin America Corporation for the purchase of $ 6,349,247in 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 of25%, 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. Intereston all balances outstanding accrues at the 90 day Libor rates plus 4%. As ofthis date, payments obligations have been duly fulfilled and no balances remainoutstanding. (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 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 at 31 May 2006, $ 457 has been drawn under this facility. (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 the interimworking capital facility with Macquarie Bank Limited. This facility will provide$1,500 for environmental bonds and $5,000 for working capital needs. Thefacility will bear interest at a rate of Libor plus 2%, and is secured by ageneral floating charge over all of the Company's assets. The working capitalfacility expired in September 2006 and the environmental bond facility inDecember 2006. 6. Equity Instruments (a) Authorized Unlimited number of Common Shares (b) Issued \* TCommon shares November 30, 2006 May 31, 2006 ----------------------------------------------------- Number Number (000's) Amount (000's) Amount -----------------------------------------------------Issued and outstanding, beginning of year 47,525 $33,595 46,107 $30,308Issued for Net profit interest acquisition (Note 6(c)) - - 290 1,096Issued for exercise of warrants for cash 250 1,013 - -Issued for mine properties acquisition - - 51 240Issued for stock options exercised 321 469 1,077 1,951 -----------------------------------------------------Issued and Outstanding 48,096 $35,077 47,525 $33,595Less: cumulative share issue costs (1) (925) (925) -----------------------------------------------------Balance, end of year 48,096 $34,152 47,525 $32,670 -----------------------------------------------------\* T \* TWarrants and convertible notes November 30, 2006 May 31, 2006 ----------------------------------------------------- Number Number (000's) Amount (000's) Amount -----------------------------------------------------Issued and outstanding, beginning of year 1,000 $188 250 $188Expired (250) - 750 -Exercised (250) (188) - - -----------------------------------------------------Issued and outstanding, end of year 500 $- 1,000 $188 ===================================================== Total equity instruments $34,152 $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 to thisagreement the Company issued three convertible notes that provided the holderwith the option to convert the note, with a face value of $ 1,050 into 250,000ordinary shares. The note may be converted during a 30 day period prior to theexpiry date. The fair value of the option to convert the notes into ordinaryshares was calculated as the difference between the nominal and fair value ofthe notes. The convertible notes expire as follows: \* TOrdinary shares to be issued Option price $ Expiry date on conversion of promissory note--------------------------------------------------------------------------- 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 November 30, 2006, 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. For the purposes of stock based compensation, the fair value of each option wasdetermined on the date of granting using the Black-Sholes option pricing modelwith the following assumptions: Dividend yield (Nil) (2005 - Nil), expectedvolatility (60%) (2006 - 60%), risk-free interest rate range of 4 to 4.3% (2006- 3%), and weighted average life of 3.0 years (2006 - 3.0 years). During the sixmonth period $ 480 (November 30, 2005 $ 158) of compensation expense wasrecorded. At November 30, 2006 the aggregate unamortized fair value of unvestedstock options granted amounted to $1,418 (2006 - $ 722)". The following table summarizes information regarding the Company's outstandingoptions as at November 30, 2006: \* T Option Price per Weighted Number of Share Range Average Exercise Shares CDN $ Price CDN $ --------------------------------------------------Balance at beginning of the period 2,567 $0.4 - $5.50 $3.03Options - granted 1,201 $3.90 - $5.29 $4.53Options - exercised or cancelled (321) $0.4 - $1.5 $1.18 ---------------Options outstanding, November 30, 2006 3,447 $0.4 - $5.50 $3.72 ===============\* T The following table summarizes information about the stock options outstandingto the officers, directors and staff at November 30, 2006: \* T Outstanding Vested options------------------------------------------------------- ------------------------------ Option Weighted average Remaining Weighted average Options price Exercise Price Life Options Exercise Price 000s CDN $ CDN $ Years 000s CDN $------------------------------------------------------- ------------------------------ 233 $0.40 $0.40 0.2 233 $0.40 15 $0.75 $0.75 1.3 15 $0.75 544 $1.50 $1.50 1.8 544 $1.50 104 $3.00 $3.00 2.5 104 $3.00 60 $3.40 $3.40 2.6 60 $3.40 570 $3.90 $3.90 4.9 - $3.90 200 $4.00 $4.00 2.4 200 $4.00 20 $4.10 $4.10 4.7 20 $4.10 763 $4.50 $4.50 3.8 254 $4.50 68 $4.62 $4.62 4.0 - $4.62 190 $4.77 $4.77 4.5 - $4.77 421 $5.29 $5.29 4.5 421 $5.29 200 $5.40 $5.40 3.0 200 $5.40 59 $5.50 $5.50 4.4 - $5.50------------ ------------ 3,447 2,051============ ============\* T (e) Earnings per share The reconciliation of basic and diluted earnings per share where relevant are asfollows: \* T Three months ended November Six months ended November 30 30 ---------------------------- 2006 2005 2006 2005 ------------------------------------------------------Basic earnings per shareNumerator Net earnings available to shareholders $1,751 $1,944 $4,318 $4,184Denominator Weighted average shares outstanding 48,081,935 46,263,746 48,026,766 46,227,580Basic earnings per share (cents per share) 0.036 0.042 .090 0.091\* T \* T Three months ended November Six months ended November 30 30 ---------------------------- 2006 2005 2006 2005 ------------------------------------------------------Basic earnings per shareNumerator Net earnings available to shareholders $1,751 $1,944 $4,318 $4,184Denominator Weighted average shares outstanding 48,081,935 46,263,746 48,026,766 46,227,580 Potential net incremental issue of shares from warrants - 250,000 - 250,000 Potential net incremental issue of shares from stock options 107,710 862,650 108,000 2,280,330 Potential net incremental issue of shares from convertible notes 500,000 750,000 500,000 750,000 Shares outstanding plus assumed conversions 48,689,645 48,126,396 48,634,766 49,507,910 Basic earnings per share (cents per share) 0.036 0.039 .089 0.085\* T 7. Contributed Surplus The following table summarizes the movements in contributed surplus. \* T May 31, November 30 November 30, 2006 2006 2005 -------------------------------------------------Balance, beginning of period 1,625 $1,577 $1,577Commitment to issue stock options (a) 917 - -Expense for the period 480 536 158Transfer to equity on exercise of options (126) (488) (166) ------------------------------------------------- 2,896 $1,625 $1,569 =================================================\* 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 November 30 2006 Gold Exploration Corporate Total ------------------------------------------------------------For the 3 months endingSales $12,433 $- $- $12,433Amortisation and depreciation $(1,909) $- $- (1,909)Net income (loss) $2,558 $(463) $(344) $1,751 For the 6 months endingSales $24,610 $- $- $24,610Amortisation and depreciation $(3,924) $- $- $(3,924)Net income (loss) $5,943 $(972) $(653) $4,318 As at 30 NovemberProperty, plant and equipment $21,719 $519 $1,235 $23,473Deferred exploration and development $4,120 $10,483 $- $14,603\* T \* T November 30 2005 Gold Exploration Corporate Total ------------------------------------------------------------For the 3 months endingSales $11,326 $- $- $11,326Amortisation and depreciation $(2,567) $- $- $(2,567)Net income (loss) $2,767 $(443) $(380) $1,944 For the 6 months endingSales $23,047 $- $- $23,047Amortisation and depreciation $(4,316) $- $- $(4,316)Net income (loss) $5,231 $(474) $(573) $4,184 As at 30 NovemberProperty, plant and equipment $24,246 $172 $10 $24,428Deferred exploration and development $- $6,973 $- $6,973\* T Exploration expenditure on the Minas de Corrales gold project and associatedexploration equipment included in property plant and equipment were transferredfrom the exploration segment to the gold segment during the quarter. 9. Supplementary cash flow information (a) The net change in working capital items is as follows: \* T Three months ended November Six months ended November 30 30 2006 2005 2006 2005------------------------------------------------------------------------------------------ Prepaid expenses and other (93) $(46) (209) $(101)Accounts receivable (1,323) (411) (1,811) (676)Accounts payable and accrued liabilities 1,393 (887) 2,652 (234)Inventory 18 (983) (915) (955) ------------------------------------------------------Net change in non-cash working capital balances (5) $(2,327) (283) $(1,966) ======================================================\* T (b) Other information \* TCash interest paid $18 $72 $41 $141\* T 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 November 30, 2006 the Company hasalready cancelled all of its financial derivatives it has entered in the past toreduce its exposure to fluctuations in the gold price. These instruments consistof gold option contracts. 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 November 30, May 31, November 30, 2006 2006 2005 --------------------------------------------------Gold put options - - 37Gold call options - (2,317) (1,573)Gold spot deferred contract - - (56) -------------------------------------------------- - (2,317) (1,592) ==================================================\* T The Company previously entered into put option contracts on 10,000 ounces at aforward price of $ 436 per ounce. To cover the cost of the put option contractsthe Company sold call options contracts on 10,000 ounces at a forward price of $486.5 per ounce. The put and call options were matched in timing and have beendelivered into on a monthly basis at a rate of 2,500 ounces per month. At theend of the period all contracts have ended and no ounces remain to be delivered. (a) Currency risk The Company's cash balances are held principally in US dollarsin a Canadian bank, while its expenses are incurred in Uruguay pesos as well asUS dollars and other currencies. The Company reports its results in UnitedStates dollars. There would be an adverse impact on the reported results if thefollowing situations arise: (i) The Uruguay inflationary impact on the peso expenses increases at more thanthe depreciation of the Uruguay peso against the United States dollar. Thiswould result in an increase of the peso-based expenses. (ii) The United States dollar depreciates against the Uruguay peso. This wouldreduce the available cash resources and increase the related expense. A significant portion of the Company's operations are located in Uruguay, andare subject to fluctuations in exchange rates. The Company manages its currencyrate risk by denominating its contracts and commitments, where possible, in USdollars. (b) Credit risk The Company enters into financial agreements (financialinstruments) with major international banks and other international financialinstitutions in order to manage underlying revenue and future cash flowexposures arising from commodity prices. Financial instruments, which subjectthe Company to concentrations of credit risk, consist primarily of cash,accounts receivable and securities. (d) Fair value risk The carrying amount of cash, accounts receivable and currentliabilities approximate their fair value due to the short-term maturities ofthese instruments. The fair value of the Company's debt is approximated by itscarrying value due to its floating interest rate. Copyright Business Wire 2007