Orosur Mining Regulatory News (OMI)

11 Oct 2007 07:00

Uruguay Mineral Exploration Inc. (TSX VENTURE:UME) (LSE:UGY): Summary of Results -- Gold production was 18,488 ounces for the first quarter compared to 19,175 ounces in the corresponding quarter of the prior financial year. While production was approximately 2,500 ounces less than anticipated for the quarter, the full year production forecast of 95,000 ounces is maintained. -- Cash costs were $US 425 per ounce for the quarter compared to $US 332 for the corresponding quarter of the prior financial year. This was in line with our expectations as a result of the lower production. -- Net profit after tax for the first quarter was $US 1.2 million or $US 0.025 basic earnings per share, compared to a net profit after tax of $US 2.6 million or $US 0.054 basic earnings per share for the first quarter of the 2006 financial year. -- Cash flow from operations before non-cash working capital movements was $US 4,111 million for the first quarter. Cash as at 31st August was $US 11.6 million. -- The average realized gold price for the first quarter was $US 661 per ounce. -- The interim dividend of C$ 3.5 cents per share, announced with the results for the annual fiscal year on 14th August 2007, will be paid to shareholders on 26th October 2007. \* T 3 Months to ----------------------- August 2007 August 2006Operating ReviewGold produced Ounces 18,488 19,175Average cash cost US$/oz 425 332Average price received US$/oz 661 568 ----------------------------------------------------------------------Financial ReviewRevenue US$ '000s 13,253 12,177Net income for the period US$ '000s 1,224 2,567Cash flow from operations* US$ '000s 4,111 3,503Basic earnings per share US$ 0.025 0.054Cash at the end of the period US$ '000s 11,631 8,545Total debt at the end of period US$ '000s 2,331 3,385----------------------------------------------------------------------* before non-cash working capital movements\* T David Fowler, Chief Executive commented: "Despite lower than anticipatedproduction results for the first quarter, we remain on target to produce 95,000ounces in the current financial year. With the diversion of the Arroyo Corralescompleted and the work areas in the Arenal pit expanding, we are confident thattarget production levels will be achieved. Cash costs for the quarter were inline with expectations, given the lower production volumes achieved. "Field work continues to produce good exploration results within the IslaCrystalina, Dom Feliciano and Florida belts, and we have defined drill targetsat Papagayo, Argentinita North, Tito Lopez, Veta Rodrigo, Nueva Helvecia,Presidente Terra and Bragado. Drilling at a number of projects has however beendelayed due to permitting issues. These are being resolved and steps are beingtaken to increase drilling rates to more aggressively convert good initial fieldresults into drill intercepts and ultimately resources. The second phase of7,000 meters of diamond drilling at Lascano is scheduled to start in Decemberusing a contractor rig and to be completed within six months. "At the shareholders meeting on 11th October I will expand on the explorationwork and put it into the context of what we are looking to achieve from eacharea of activity. The presentation that I will be making will be on the websitefrom the morning of 11th October 2007." Review of the Quarter ended 31 August 2007 Production Production for the quarter was 18,488 ounces compared to 21,000 ounces forecaston 2nd August 2007. This shortfall was due to lower grades than anticipated forore mined in the first benches beneath the Arroyo Corrales. More tonnes wereencountered at lower grade with more overall ounces mined from the area thanestimated. Higher grade ore was fed to the plant as presented with lower gradematerial stockpiled for future periods. The first benches beneath the Arroyo Corrales were classified as IndicatedResources as they could not be fully drilled due to access restrictions. Thisresult has no implications on the remainder of the Arenal resource estimates andproduction for September was in line with forecasts with more than 8,000 ouncesproduced for the month. In July 2007 the channel to divert the Arroyo Corrales was completed and waterstarted flowing. Flood protection dykes were completed during September andenvironmental reclamation commenced. Now that the Arenal pit has been expanded,ore stocks are being built to increase flexibility in achieving productiontargets. UME expects to achieve its stated production target of 95,000 ounces withconsistent production for each of the remaining quarters of 2008. Financial Performance Operating costs for the quarter were $ 425 per ounce. While high on a per ouncebasis due to lower production levels, operating costs were in line withexpectations and the company maintains its full year forecast of $US 345 perounce. Effective 1st June 2007, UME has adopted new standards based on the Changes inCanadian Accounting Recommendations with respect to stripping charges. Theimpact of applying such recommendations was to decrease the operating costs usedas the basis for the Company's cash cost calculation relative to the operatingcosts under the previous method by $136. Had the previous method of calculatingoperating costs been used, the cash costs per ounce would have been $432. Thischange is further explained in the Management Discussion and Analysis for thequarter. Additional details explaining the evolution of operational cost increases overthe past two years is provided in the Annual General Meeting presentation whichis available for download from the Company's website from 11th October 2007. Gold Exploration Priority for exploration drilling for the quarter was given to near mine targetsat San Gregorio. Infill drilling was completed for Veta A and Sur to allowresource modelling and mine planning of these deposits. This material will beused to blend with Arenal ore over the next two years to maximize throughput.Step out drilling 400 meters along strike to the southwest of Veta Surintersected a weakly mineralized structure. Subsequent to the end of thequarter, drilling at San Antonio, a further 500 meters along strike to thesouthwest, reported a drill intercept of 1 meter at 157 g/t at 24 meters and anadditional 5 meters at 8 g/t starting at 25 meters (not true thickness). A number of targets in the footwall and northwest of San Gregorio were tested inan attempt to expand resources in these areas and allow mine plans to befinalised. Lower grade intercepts encountered in the footwall will be followedup. During the quarter a deep drill program was designed to test for mineralizationat San Gregorio and Arenal to a depth of 500 meters. The program commenced inSeptember with the results expected to be reported in the coming quarter. Drilling and trenching at a number of projects in the Zapuchay districtincluding Papagayo, Nueva Helvecia, Veta Rodrigo, and Presidente Terra have beendelayed pending the grant of exploration permits. These permits are expected tobe received during the second quarter. Further to the east of the IslaCrystalina belt at Vichadero, an anomalous target, 1.5 km long with rock chipsamples above 5 g/t, has been identified. Regional exploration is progressing well with the source of geochemicalanomalies being identified and tested in both the Dom Feliciano and Floridabelts. At Texas (in the Dom Feliciano belt) new quartz veins have beenidentified with anomalous grades in rock chip samples. Soil and geophysicsprograms are planned for these projects in the coming quarters to identify drilltargets for later in the financial year. Good progress has also been made in theFlorida belt. At Cruzera the final four diamond drill holes in the initial drillcampaign were completed during the quarter. The results of this program confirmmineralization over a strike length of 800 meters to a depth of 100 meters.Further strike extensions to mineralization are now being targeted through soilsampling and encouraging results are being received for similar vein systems 20km further to the south at Casupa, where veins are being mapped and sampled withrock chip samples to 200 grams per tonne. Drilling is planned for this districtfor the second half of the financial year. External evaluations have been completed on the performance of UME's ownexploration drilling fleet and plans have been established to increaseutilization and improve drilling efficiency over the remainder of the year. Non-Gold Assets Lascano At Lascano a fifth and final drill hole for the 2007 campaign, targeting a nearsurface gravity anomaly, was completed during the quarter. The rocks encounteredwere predominantly intrusive in nature and composed of gabbro and dolerite togranite (granophyre). Though no alteration or mineralization was observed, thehole is providing us with very valuable information about the composition of therocks and the intrusion. As a result of the 2007 drill campaign, the Lascano geophysical anomaly has beeninterpreted to be created by gabbro to granitic (granophyre) intrusive rocksunderlying a package of magnetic basalt and felsic volcanic rocks. Down drop ofthe volcanic rocks outside the feature to the north has caused an edge effect,which has highlighted the magnetic character of the magnetic flood basalts. Itis theorized at this stage that alteration and mineralization, with similaritiesto iron oxide copper gold and porphyry copper systems, observed in drill hole 2are directly or indirectly caused by the intrusive bodies. A 7,000 to 10,000 meter drill campaign, to be performed by contractors, isplanned to commence during November and to be completed by the end of thefinancial year. The program will offset drill the anomalous mineralizationencountered in hole 2. The program will consist of four to five drill holes to adepth of about 1,100 metres in and around hole 2 and an additional four to fivedrill holes in a similar geophysical settings in other parts of the anomaly. Diamonds and Base metals Negotiations have progressed with a number of parties on diamonds and basemetals properties. As a result of these discussions, work on these projects wasscaled back. Drilling of kimberlite targets on the diamond project is delayedpending the grant of exploration permits. An external review of UME's nickel properties including Mal Abrigo, Paso deLugo, Carpentaria and Yatay, has been undertaken by GeoDiscovery, an externalspecialized nickel consultant. This review has confirmed the potential of theseproperties for nickel discovery. It has also identified key additional workrequired to progress the projects to a point of attracting potential partners.The Group plans to complete this work during the course of the financial year. During the quarter UME submitted an expression of interest to the Uruguayangovernment for its tender of Uranium rights. UME's participation will be on thebasis of a minority partner providing data, including geochemical andgeophysical information, equipment resources and administrative support. Exploration Report for the Quarter ended 31 August 2007 This report provides details of exploration activities during the quarter ended31 August 2007. Highlights -- In fill drilling on Veta Sur has been completed and mine planning has commenced. The first step out drilling 400 meters along strike of known mineralization has encountered the structure and anomalous mineralization. Drilling commenced on the San Antonio prospect, a further 500 meters to the south also encountered mineralization with assays pending. -- Drill programs have been developed to test the down dip extensions of San Gregorio and Arenal. An initial program of eight holes to approximately 300 meter depth commenced in September. -- At Vichadero rock chip sampling has identified an anomalous gold zone of 1.5 km in length. Soil sampling is planned for the coming quarter to identify drill targets for the second half of the year. -- Drill programs have been developed for anomalous zones between Zapachay and Argentinita and at Papagayo, Titlo Lopez and Lavadero in the Zapuchay district. These programs will commence when exploration permits are received. -- At Bragado trenching has shown significant copper mineralization with values of greater than 1%. Drilling commenced in September to define the extent of mineralization. -- A strongly anomalous vein system 800 meters long has been defined at Casupa with gold values of up to 207 g/t. Geophysics and soil sampling will be performed at both Casupa and Cruzera during the current quarter with a drill program expected to be completed early in 2008. -- At Lascano the fifth and final drill hole in the current campaign targeting a near surface gravity anomaly was completed during the quarter. The rocks encountered were predominantly intrusive. A 7,000 to 10,000 meter drill campaign, to be performed by contractors, is planned to commence before the end of the calendar year and be completed by the end of the financial year. -- UME's nickel properties including Mal Abrigo, Paso de Lugo, Carpentaria and Yatay have been reviewed by GeoDiscovery, an external specialized nickel consultant. This review has confirmed that a number of these properties have good exploration potential for nickel and associated elements. -- Seven projects are drill ready and awaiting the granting of permits by Uruguay's ministry of mines to proceed. This has delayed the commencement of a number of projects but is expected to progress in the current quarter. A program to improve exploration drill productivity and utilization has commenced. It is expected that this process will significantly increase meters drilled over the remainder of the year. Isla Cristalina Belt - Minas Del Corrales District (Arenal and San Gregorio) Drilling during the quarter focused on near-mine targets with the majority ofthe meters applied to definition drilling of Vetas A and Sur. Explorationdrilling was also completed in the foot wall of the San Gregorio structure andalong the northwest extension chasing anomalous intercepts which, if successful,will reduce the strip ratio for underlying resources at San Gregorio. Results todate have returned weakly mineralized intercepts and are as follows: \* TSan Gregorio footwall---------------------------------------------------------Prospect Hole Number From Intercept---------------------------------------------------------San Gregorio SGRC003 9 2m @ 2.00g/t---------------------------------------------------------San Gregorio SGRC003 19 1m @ 1.10g/t---------------------------------------------------------San Gregorio SGRC003 38 6m @ 0.60g/t---------------------------------------------------------San Gregorio SGRC005 28 5m @ 0.40g/t---------------------------------------------------------San Gregorio SGRC005 129 1m @ 0.80g/t---------------------------------------------------------\* T An additional round of drilling is planned in the footwall to target highergrade material. The organization of the database combining geochemistry, geophysics and theirrelationship to the regional geology has identified and or rediscovered a numberof anomalies. Targets include the extension to the San Gregorio mineralizationand the San Antonio prospect. The down dip extensions to the main mineralized ore bodies of San Gregorio,Arenal and Santa Teresa represent important exploration targets. It is clearfrom the historic drilling and resource models that the models are drill holeconstrained and mineralization remains open at depth. The first drill hole in acampaign to target this deeper mineralization commenced in September. It isclear that these ore bodies pinch and swell along strike and down dip. It isexpected that additional resources will be added at depth. Drilling continued in Veta A and Sur to further define the deposits. It isbelieved that additional resources will be added to the model which waspresented at the end of August 2007. An in-house resource and reserve model isbeing updated for both vein deposits. This will be used in mine planning andproduction in the next 24 months. Mineralization is known to continue under thetailings dam and San Gregorio waste dumps respectively to the southwest.Significant results from the Vetas are presented below for the first quarter.Veta A and Sur results are from a 25 x 25 meter definition drill program. \* TProspect Hole Number From Intercept---------------------------------------------------Veta A VARC-088 38 5m @ 2.87g/t---------------------------------------------------Veta A VARC-089 46 5m @ 1.74g/t---------------------------------------------------\* T (intercepts are composites using 0.5 g/t cut) Results used in August 2007 resource model. \* TProspect Hole Number From Intercept------------------------------------------------- Veta Sur VSRC-049 76 2m @ 1.08g/t------------------------------------------------- Veta Sur VSRC-049 80 4m @ 4.97g/t------------------------------------------------- Veta Sur VSRC-057 87 3m @ 3.15g/t------------------------------------------------- Veta Sur VSRC-059 71 4m @ 10.28g/t------------------------------------------------- Veta Sur VSRC-059 78 1m @ 5.30g/t------------------------------------------------- Veta Sur VSRC-061 112 6m @ 2.76g/t------------------------------------------------- Veta Sur VSRC-064 111 3m @ 1.81g/t------------------------------------------------- Veta Sur VSRC-066 117 5m @ 2.15g/t------------------------------------------------- Veta Sur VSRC-067 117 5m @ 2.29g/t------------------------------------------------- Veta Sur VSRC-076 69 5m @ 1.43g/t------------------------------------------------- Veta Sur VSRC-077 58 2m @ 2.50 g/t------------------------------------------------- Veta Sur VSRC-078 51 1m @ 17.10g/t------------------------------------------------- Veta Sur VSRC-079 21 9m @ 4.90g/t------------------------------------------------- Veta Sur VSRC-080 35 5m @ 7.42g/t------------------------------------------------- Veta Sur VSRC-083 35 3m @ 2.26g/t------------------------------------------------- Veta Sur VSRC-087 94 4m @ 2.72g/t------------------------------------------------- Veta Sur VSRC-094 41 1m @ 5.33g/t------------------------------------------------- Veta Sur VSRC-095 74 2m @ 2.28g/t------------------------------------------------- Veta Sur VSRC-096 76 2m @ 2.06g/t------------------------------------------------- Veta Sur VSRC-096 79 5m @ 2.62g/t------------------------------------------------- Veta Sur VSRC-098 27 3m @ 1.27g/t------------------------------------------------- Veta Sur VSRC-100 74 3m @ 1.87g/t------------------------------------------------- Veta Sur VSRC-102 60 1m @ 3.43g/t------------------------------------------------- Veta Sur VSRC-102 67 1m @ 20.30g/t------------------------------------------------- Veta Sur VSRC-102 76 3m @ 1.67g/t------------------------------------------------- Veta Sur VSRC-104 82 6m @ 3.10g/t------------------------------------------------- Veta Sur VSRC-105 55 2m @ 6.96g/t------------------------------------------------- Veta Sur VSRC-106 77 4m @ 4.16g/t------------------------------------------------- Veta Sur VSRC-107 88 2m @ 2.15g/t------------------------------------------------- Veta Sur VSRC-108 81 8m @ 1.88g/t------------------------------------------------- Veta Sur VSRC-109 50 1m @ 20.5g/t------------------------------------------------- Veta Sur VSRC-112 71 8m @ 3.9g/t------------------------------------------------- Veta Sur VSRC-113 54 1m @ 8.2g/t------------------------------------------------- Veta Sur VSRC-113 56 1m @ 3.3g/t------------------------------------------------- Veta Sur VSRC-113 71 3m @ 3.3g/t------------------------------------------------- Veta Sur VSRC-114 40 2m @ 1.1g/t------------------------------------------------- Veta Sur VSRC-114 74 5m @ 1.5g/t------------------------------------------------- Veta Sur VSRC-117 85 6m @ 2.0g/t------------------------------------------------- Veta Sur VSRC-118 49 3m @ 2.8g/t------------------------------------------------- Veta Sur VSRC-119 70 7m @ 1.4g/t------------------------------------------------- Veta Sur VSRC-121 49 3m @ 1.3g/t------------------------------------------------- Veta Sur VSRC-121 60 4m @ 2.6g/t------------------------------------------------- Veta Sur VSRC-122 27 1m @ 6.6g/t------------------------------------------------- Veta Sur VSRC-123 26 2m @2.7g/t-------------------------------------------------\* T (Intercepts are composites using 0.5 g/t cut) Results through drill hole VSRC-073 used in the August 2007 resource model Drilling has commenced on the extension of the Veta Sur deposit southwest of theSan Gregorio dump and in the area of Cross Hill and San Antonio prospects some400 meters and 900 meters south of the last defined mineralization respectively.Results for these areas are pending, though the structure was cut just south ofthe dump with weak to moderate mineralization. Anomalous mineralized interceptsare expected from the San Antonio prospect. No significant intercepts areexpected at Cross Hill. Exploration drilling will continue in San Antonio andalong the extension of Veta Sur next quarter. Isla Cristalina Belt - Argentinita/Zapucay District Resource and reserve estimates were completed on the Argentinita deposit andpresented in the full year results. Drilling for metallurgical samples has beencompleted during the quarter. Drilling is planned between the Zapucay andArgentinita deposits as well as at Lavadero, Papagayo and Tito Lopez prospects.All of these prospects are within 6 kilometers of one another. Mapping and sampling at Papagayo over the last 6 months has defined over akilometer of anomalous gold mineralization greater than 0.5 g/t Au in rock chiphosted in a low angle shear zone. A number of trace elements are associated withgold mineralization including Ag, Pb and Mo, with path finder elements As, Bi,Hg, Sb, and Tl. A soil sampling survey has further defined the zone ofmineralization using these trace elements. An exploration drill program has been designed for the greater district whichincludes Papagayo, Tito Lopez, and Laurales and will commence when explorationpermits are received. This is expected to be during the second quarter. Isla Cristalina Belt - West Generative exploration has taken place over the western most portion of the IslaCristalina belt. Stream sediment sampling has been taken in areas previouslylacking first pass sampling. Results from this program are pending. Hand trench sampling, mapping and a reconnaissance IP survey have been completedover the Veta Rodrigo target. Trench sampling has indicated that anomalousvalues are associated with the vein though somewhat less anomalous than theoriginal surface outcrop samples. Exploration permits have been received and anegotiation with land owners is underway for access to the vein. Drilling willcommence once access is granted. A full review of the Sobresaliente took place in June as a possible futuresource of feed for the mill. Additional exploration targets were also evaluatedand have been deemed lower priority at this time. Isla Cristalina Belt - Eastern Half The generative exploration work continues in the eastern half of the IslaCristalina belt. Follow-up sampling of the Vichedero stream sediment anomalieshas defined gold mineralization in small vein sets within the 3 by 6 kilometerbasin area. Outcrop in this end of the belt is scarce and rock chip sampling wasdone in road cuts and along a local aqueduct that cuts across the pasture land.Thin veins have been sampled which are exposed in the aqueduct and have returnedstrongly mineralized results which are presented below. \* TVichedero------------------------------------------Sample ID Au_g/t Ag ppm Cu ppm------------------------------------------12051 6.46 14 3.4------------------------------------------12095 0.58 0.3 5.4------------------------------------------12092 0.65 1.9 2.3------------------------------------------12093 0.74 0.2 50.2------------------------------------------12094 0.46 0.7 14.8------------------------------------------12096 0.87 2.1 2.5------------------------------------------12101 2.25 6.7 9.9------------------------------------------12076 2.28 6.2 70.4------------------------------------------12111 3.59 12 29.2------------------------------------------12122 0.43 0.8 6.1------------------------------------------12123 2.32 3.1 5.5------------------------------------------12126 2.44 0.6 13.2------------------------------------------12130 0.41 0.3 10.7------------------------------------------\* T The anomaly defined by these samples is over 1.5 kilometers long and strikes tothe northwest and runs parallel to lineaments defined by airborne geophysics.This represents a significant increase in our understanding of the source of theanomalous stream sediments and could represent a bulk tonnage target. A detailedsoil sampling program is planned to cover the entire area to help further definedrill targets. Drilling is planned for the second half of the year. Florida and Dom Feliciano Belts Au Presidente Terra Mapping and sampling continued to define drill targets on the property. Work hasconcentrated on the contact between the meta-sediments and granite. There issome evidence that this NNE trending contact may be shear and/or fault related.Mapping has also defined mineralization within the granites which is hosted invein/shears associated with a large NNE trending boundary structure to the DomFeliciano Belt. Au mineralization is associated with hematite, pyrite andmagnetite within veins and breccia. Visible gold is found in most of the veinsets identified. Soil and geophysical surveys are planned for the second quarterover the main areas of mineralization. Trenching and drilling will commence once exploration permits are approved andland owner agreements completed. Surface sampling results for the quarter are presented below. \* TPresidente Terra------------------------------------------Sample ID Au_g/t Ag ppm Cu ppm------------------------------------------12051 6.46 14 3.4------------------------------------------12095 0.58 0.3 5.4------------------------------------------12092 0.65 1.9 2.3------------------------------------------12093 0.74 0.2 50.2------------------------------------------12094 0.46 0.7 14.8------------------------------------------12096 0.87 2.1 2.5------------------------------------------12101 2.25 6.7 9.9------------------------------------------12076 2.28 6.2 70.4------------------------------------------12111 3.59 12 29.2------------------------------------------12122 0.43 0.8 6.1------------------------------------------12123 2.32 3.1 5.5------------------------------------------12126 2.44 0.6 13.2------------------------------------------12130 0.41 0.3 10.7------------------------------------------\* T Bragado At the Bragado prospect, detailed mapping, sampling and trenching have beencompleted. This work has defined mineralization hosted in veins which cut thefolded meta-sediments, meta-volcanic and associated granitic host rock. Mostveins are parallel to the fold axis and trend NNE, as does the belt.Mineralization is also found locally concentrated in the nose of the folds. Theprospect is predominately copper with minor gold mineralization. A drill programis planned for September to test the extent of copper/gold mineralization.Significant results from the last quarter surface exploration are presentedbelow. Surface Samples \* TBragado-----------------------------------------------------------Sample ID Au_g/t Ag ppm Cu ppm-----------------------------------------------------------EX10652 0.03 (less than)0.30 58-----------------------------------------------------------EX10656 (less than)0.005 (less than)0.30 63-----------------------------------------------------------EX10658 0.59 2.20 962-----------------------------------------------------------EX10659 0.01 (less than)0.30 170-----------------------------------------------------------EX10661 0.01 (less than)0.30 653-----------------------------------------------------------EX10662 0.05 4.70 969-----------------------------------------------------------EX10664 0.08 1.90 514-----------------------------------------------------------EX10667 0.01 0.40 509-----------------------------------------------------------\* T \* T From To AuSample ID Trench (m) (m) Interval g/t Ag ppm Cu ppm---------------------------------------------------------------------- (lessEX10829 BR_07_TRN2 17.30 18.54 1.24 0.10 than)0.30 589---------------------------------------------------------------------- (lessEX10830 BR_07_TRN2 18.54 19.80 1.26 0.01 than)0.30 1085---------------------------------------------------------------------- (lessEX10832 BR_07_TRN2 19.80 21.44 1.64 0.02 than)0.30 1242----------------------------------------------------------------------EX10833 BR_07_TRN2 21.44 23.00 1.56 0.10 0.50 6852---------------------------------------------------------------------- (greater than)EX10834 BR_07_TRN2 23.00 24.50 1.50 0.56 2.70 10000----------------------------------------------------------------------EX10835 BR_07_TRN2 24.50 25.50 1.00 0.07 0.90 7278---------------------------------------------------------------------- (greater than)EX10836 BR_07_TRN2 25.50 26.30 0.80 0.18 5.90 10000---------------------------------------------------------------------- (greater than)EX10837 BR_07_TRN2 26.30 27.80 1.50 0.09 0.60 10000----------------------------------------------------------------------EX10838 BR_07_TRN2 27.80 29.30 1.50 0.02 0.40 9268----------------------------------------------------------------------EX10839 BR_07_TRN2 29.30 30.90 1.60 0.01 0.40 8272----------------------------------------------------------------------EX10840 BR_07_TRN2 30.90 32.20 1.30 0.01 0.30 7598---------------------------------------------------------------------- (lessEX10842 BR_07_TRN2 32.20 33.50 1.30 0.02 than)0.30 9158---------------------------------------------------------------------- (lessEX10848 BR_07_TRN2 39.00 39.75 0.75 0.12 than)0.30 2007----------------------------------------------------------------------EX10849 BR_07_TRN2 39.75 41.25 1.50 0.01 0.30 1279----------------------------------------------------------------------EX10850 BR_07_TRN2 41.25 42.20 0.95 0.02 0.30 1048---------------------------------------------------------------------- (lessEX10852 BR_07_TRN2 42.20 43.80 1.60 0.01 than) 0.3 1529---------------------------------------------------------------------- (lessEX10853 BR_07_TRN2 43.80 45.50 1.70 0.01 than) 0.3 1055---------------------------------------------------------------------- (lessEX10854 BR_07_TRN2 45.50 46.50 1.00 0.01 than) 0.3 2066---------------------------------------------------------------------- (lessEX10928 BR_07_TRN9 9.04 10.48 1.44 0.04 than) 0.3 1554---------------------------------------------------------------------- (lessEX10929 BR_07_TRN9 10.48 11.87 1.39 0.08 than) 0.3 1523---------------------------------------------------------------------- (lessEX10930 BR_07_TRN9 11.87 12.77 0.90 0.03 than) 0.3 1956----------------------------------------------------------------------EX10931 BR_07_TRN9 12.77 13.97 1.20 0.02 0.30 1050---------------------------------------------------------------------- (lessEX10932 BR_07_TRN9 13.97 15.28 1.31 0.04 than) 0.3 1642---------------------------------------------------------------------- (lessEX10933 BR_07_TRN9 15.28 15.92 0.64 0.03 than) 0.3 2325---------------------------------------------------------------------- (lessEX10934 BR_07_TRN9 15.92 16.87 0.95 0.01 than) 0.3 63----------------------------------------------------------------------EX10935 BR_07_TRN9 16.87 17.82 0.95 0.27 0.70 525----------------------------------------------------------------------EX10937 BR_07_TRN9 17.82 18.20 0.38 0.06 0.50 3311----------------------------------------------------------------------EX10938 BR_07_TRN9 18.20 19.20 1.00 0.06 0.40 791----------------------------------------------------------------------EX10939 BR_07_TRN9 19.20 20.28 1.08 0.10 0.50 1882---------------------------------------------------------------------- (greater than)EX10940 BR_07_TRN9 20.28 21.28 1.00 0.05 0.50 10000----------------------------------------------------------------------EX10941 BR_07_TRN9 21.28 22.32 1.04 0.08 0.60 9166----------------------------------------------------------------------EX10942 BR_07_TRN9 22.32 23.15 0.83 0.12 0.50 2328---------------------------------------------------------------------- (lessEX10943 BR_07_TRN9 23.15 24.16 1.01 0.05 than) 0.3 4029----------------------------------------------------------------------EX10944 BR_07_TRN9 24.16 25.66 1.50 0.06 0.50 4106----------------------------------------------------------------------EX10945 BR_07_TRN9 25.66 27.10 1.44 0.03 0.90 4334----------------------------------------------------------------------EX10947 BR_07_TRN9 27.10 28.89 1.79 0.04 0.40 2359----------------------------------------------------------------------EX10883 BR_07_TRN3 19.77 20.77 1.00 0.01 0.30 4205----------------------------------------------------------------------EX10884 BR_07_TRN3 20.77 21.65 0.88 0.07 0.70 7225---------------------------------------------------------------------- (greater than)EX10885 BR_07_TRN3 21.65 22.70 1.05 1.77 8.30 10000----------------------------------------------------------------------EX10893 BR_07_TRN4 21.70 22.70 1.00 0.10 0.40 5294---------------------------------------------------------------------- (lessEX10903 BR_07_TRN5 36.66 37.10 0.44 0.85 than)0.30 21---------------------------------------------------------------------- (lessEX10917 BR_07_TRN7 26.50 27.06 0.56 0.54 than)0.30 28----------------------------------------------------------------------EX10919 BR_07_TRN7 51.18 52.18 1.00 0.12 0.40 4955---------------------------------------------------------------------- (lessEX10920 BR_07_TRN7 52.18 53.05 0.87 0.06 than)0.30 3251---------------------------------------------------------------------- (lessEX10924 BR_07_TRN8 32.48 33.66 1.18 0.71 than)0.30 21----------------------------------------------------------------------\* T Clearly the results from trenching show that significant Copper mineralizationdoes occur to greater than 1%. The drill program in September will try to definethe extent of the mineralization. Texas Texas prospect has had limited first pass exploration work completed during thequarter. Mineralization is associated with quartz veins which host sulfidemineralization. Two additional targets have been identified on the propertyoutside of the original target area. Mineralization is associated with quartzveins and gossan ironstones near contacts between granitic intrusions andmeta-sediments. The most significant results from the last quarter are presentedbelow. \* TProject Sample ID Au g/t Ag ppm--------------------------------------------------Texas EX10685 4.586 (less than).3--------------------------------------------------Texas EX10686 4.602 1.7--------------------------------------------------Texas EX10687 1.427 2.6--------------------------------------------------Texas EX10692 0.462 0.3--------------------------------------------------Texas EX10693 0.161 (less than) 0.3--------------------------------------------------\* T Further work is planned on this prospect for later in the year. Development ofdrill targets is planned before the end of the fiscal year. Florida Belt Crucera The Crucera vein deposit is one of a number of vein deposits that are currentlybeing explored and developed in the Crucera/Casupa district of the Florida Belt.The district lies in the eastern end of the Piedra Alta terrain and covers anarea of 20 by 5 kilometers. Resource drilling has been completed and an in-house resource has beenestimated. It is clear from this work that mineralization does continue down dipand along strike though the mineralized shear pinches and swells. To date nearly800 meters of strike length have been drill tested to a depth of 100 meters.Results from this quarter's drill program are presented below. \* TProspect Hole Number From Intercept Type-----------------------------------------------------------------Crucera CR_07_018 31 1.05m @ 2.88g/t Au DDH-----------------------------------------------------------------Crucera CR_07_019 18 4m @ 1.94g/t RC-----------------------------------------------------------------Crucera CR_07_020 54 2m @ 1.28 g/t RC-----------------------------------------------------------------Crucera CR_07_022 62.15 7.85m @ 5.24g/t Au DDH-----------------------------------------------------------------\* T Additional mapping and soil sampling is underway along strike 1 km both to thenorthwest and southeast to better define the extent of the mineralization. Apreliminary description of the soil samples taken along strike indicates thatquartz vein material is found within the samples. Once results are received adrill program will be designed to test the stronger anomalies. Casupa Sampling and mapping continues within the southern part of the district and hasconcentrated on the Madre Con Hijos vein system deposit. The veins seem to befolded and carry significant mineralization in both limbs of the fold.Mineralization has been defined for 800 metes along strike. Significant resultsfrom the first quarter are presented below. \* TProject Sample # Au g/t Ag ppm--------------------------------------------------------------------Casupa EX11257 4.06 0.90--------------------------------------------------------------------Casupa EX11258 100.60 7.40--------------------------------------------------------------------Casupa EX11259 1.56 0.50--------------------------------------------------------------------Casupa EX11263 2.02 0.60--------------------------------------------------------------------Casupa EX11265 (less than)0.005 (less than) 0.3--------------------------------------------------------------------Casupa EX11268 1.01 1.10--------------------------------------------------------------------Casupa EX11270 43.20 15.90--------------------------------------------------------------------Casupa EX11271 1.13 1.60--------------------------------------------------------------------Casupa EX11273 6.07 2.90--------------------------------------------------------------------Casupa EX11274 15.40 13.50--------------------------------------------------------------------Madre con Hijos EX11158 8.54 7.80--------------------------------------------------------------------Madre con Hijos EX11159 207.80 (greater than) 100.00--------------------------------------------------------------------Madre con Hijos EX11160 6.69 8.00--------------------------------------------------------------------Madre con Hijos EX11161 8.85 7.30--------------------------------------------------------------------Madre con Hijos EX11162 0.56 2.80--------------------------------------------------------------------Madre con Hijos EX11163 1.20 1.40--------------------------------------------------------------------Madre con Hijos EX11164 55.60 10.80--------------------------------------------------------------------Madre con Hijos EX11167 9.03 4.50--------------------------------------------------------------------\* T A geophysical survey is planned for the property to further define the extent ofthe vein system. Drilling of this vein system is planned in the second half ofthe fiscal year along with other vein targets in the district. Nueva Helvecia UME is earning an interest in the Nueva Helvecia property under an agreementwith Delcosur. The property is located in southeastern Uruguay. Explorationactivity in the quarter consisted of detailed mapping, sampling and ageophysical survey (IP). Work presented has defined areas for drill testing. TheIP survey has defined areas of high chargeability which may be associated withsulfide and therefore gold mineralization. The most significant surface resultsfor the quarter are presented below. It is reported that mineralization occursin disseminated sulfides associated with quartz vein stringers with sericite andankerite altered host rocks. \* TProject Sample ID Au g/t Ag ppm------------------------------------------------------Nueva Helvecia EX10697 46.7 4.1------------------------------------------------------Nueva Helvecia EX11836 1.91 6.6------------------------------------------------------Nueva Helvecia EX10700 0.853 (less than) 0.3------------------------------------------------------Nueva Helvecia EX11835 0.303 (less than) 0.3------------------------------------------------------Nueva Helvecia EX11827 0.275 (less than) 0.3------------------------------------------------------Nueva Helvecia EX10699 0.208 (less than) 0.3------------------------------------------------------Nueva Helvecia EX10695 0.127 (less than) 0.3------------------------------------------------------\* T Historic drill results from REA Gold are presented below. \* THole ID From (m) Intercept Au----------------------------------------RCCR2 7 1m @ 5.64g/t----------------------------------------RCCR3 6 11m @ 2.19g/t----------------------------------------RCCR4 39 12m @ 2.94g/t----------------------------------------\* T Drilling is planned to test the positive results as well as geophysical andgeological targets once exploration permits are granted. Base metal Properties Three groups are presently interested in our base metal properties. One juniormining company has signed a Confidentiality Agreement and is reviewing our data. UME's Nickel properties including Mal Abrigo, Carpentaria, Paso de Lugo andYatay have been reviewed by GeoDiscovery, an Australia based mineral explorationgroup with specific experience in nickel sulphide deposits. A report received inearly September has assessed the projects and confirmed that a number of theproperties have good potential for the discovery of nickel sulphide deposits. Anexploration program will be developed to address important deficiencies inexisting information and an external consulting group will be contracted tocomplete the work. The ultimate goal is to discover significant mineralizationso the projects can be developed with a partner. Lascano Geophysical Anomaly The Lascano exploration target is composed of three large circular geophysicalfeatures which are each approximately 20 kilometers in diameter. The anomalieswere defined by an airborne geophysical survey flown in 2005 by BellGeophysical. The geophysical features are composed of both high and low gravitygradient and magnetic anomalies which form the three separate circular patterns.Drilling to date has been designed to explore the center of the threegeophysical anomalies. The final hole, LASDDH-005, in the preliminary campaign was completed thisquarter in one of the near surface gravity anomalies. Detailed logging of thishole has shown that the rocks encountered are predominately intrusive in natureand composed of gabbro to granite (granophyre) in composition. No alteration ormineralization was observed though selective samples have been taken formineralogical as well as geochemical analysis. This final hole in the anomalyhas helped define the overall environment. An evaluation of the results was carried out in the quarter with the followinginterpretation being put forward. The density anomaly is created by gabbro to granite (granophyre) intrusive rocksunderlying a package of magnetic basalt and felsic volcanic rocks. Down-drop ofthe volcanic rocks outside the feature, as evident in drill hole 4 to the north,has caused an edge effect which has highlighted the magnetic character of themagnetic flood basalts. It is theorized at this stage that alteration andmineralization observed in hole 2 are directly or indirectly caused by theintrusive bodies described above. A drill program has been proposed to offset drill the anomalous mineralizationencountered in hole 1. The program will consist of four to five drill holes inand around hole 2 and an additional four to five drill holes in similargeophysical setting within the central anomaly. Diamond Exploration Exploration activities have slowed with respect to diamond properties as theCompany waits for exploration permits to be granted. Several additional targetshave been identified for drill testing and exploration permits have beensubmitted. Drilling UME exploration presently runs a fleet of five drill rigs. Productivity andutilization of these machines has been below expectations. External reviews ofperformance have been completed and a number of options are being considered toincrease utilization and productivity for the remainder of the financial year. 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. Mr.Sadek 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. The TSX Venture Exchange has not reviewed and does not accept responsibility forthe adequacy or accuracy of this news release. Editors' 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 Uruguay (San Gregorio), and is also the leading mineralexploration company in Uruguay having assembled an exploration portfolio basedon gold, base metals (copper, nickel, lead, zinc) and diamond prospects. Uruguay Mineral Exploration Inc. is quoted in Canada (TSXV) and London (AIM) andRBC Capital Markets is its Nominated Adviser and Broker. \* TFor further information, please contact: Uruguay Mineral Exploration IncTony Shearer, Chairman: +44 20 7602-1570; tonyshearer@btinternet.comDavid Fowler, CEO: 598 2 6016354; urumin@ume.com.uy Investor/Media RelationsEmily Bruning, Shared Value Ltd: +44 (0) 20 7321 5027; ebruning@sharedvalue.net RBC Capital MarketsAndrew Smith: +44 (0) 20 7029 7882; andrew.smith@rbccm.comSarah Wharry: +44 (0) 20 7653 4667; sarah.wharry@rbccm.comMartin Eales: +44 (0) 20 7029 7881: martin.eales@rbccm.com\* T Uruguay Mineral Exploration Inc. Consolidated Interim Financial Statements For the three month period ended August 31, 2007 (Unaudited) 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 period ended August 312007. Consolidated Interim Financial Statements Consolidated Balance Sheets Consolidated Statements of Income, other comprehensive income and RetainedEarnings Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements \* T Uruguay Mineral Exploration Inc. Consolidated Balance Sheets (Unaudited) (Thousands of United States Dollars, except where indicated) As at -------------------- August 31, May 31, 2007 2007---------------------------------------------------------------------- $ $Assets Current assets Cash and cash equivalents 11,631 13,978 Accounts receivable 2,011 2,275 Inventories 9,818 8,484 Prepaid expenses and other 499 647 -------------------- 23,959 25,384 Property plant and equipment (Note 2) 33,549 30,714Deferred exploration (Note 3) 16,581 16,316Future income tax assets 2,638 2,387Other non current assets 142 140 --------------------Total assets 76,869 74,941 ---------------------------------------------------------------------- Liabilities and Shareholders' Equity Current liabilities Accounts payable and accrued liabilities 7,211 6,238 Provision for dividends 1,625 - Current portion of long term debt (Note 4) 2,166 1,231 -------------------- 11,002 7,469 Long term tax payable 2,414 2,414Long term debt (Note 4) 165 2,154Asset retirement obligation 2,036 2,036 --------------------Total liabilities 15,617 14,073 -------------------- Equity instruments (Note 5) 35,372 34,592Warrants (Note 5) 12 12Contributed surplus (Note 6) 3,302 3,297Accumulated other comprehensive income (19) (19)Retained earnings 22,585 22,986 --------------------Total shareholder's equity 61,252 60,868 -------------------- Total liabilities and shareholder's equity 76,869 74,941----------------------------------------------------------------------\* T Approved by the Board of Directors \* T"David Fowler Director "Tony Shearer" Director\* T \* T Uruguay Mineral Exploration Inc. Consolidated Statements of Income, other comprehensive income and Retained Earnings (Unaudited)(Thousands of United States Dollars, except for earnings per share an weighted average number of shares outstanding) Three months ended August 31 August 31 ----------- ----------- 2007 2006---------------------------------------------------------------------- $ $ Sales 13,253 12,177 Operating expenses 8,323 6,749 Amortization, depletion and accretion 2,412 2,015 -----------------------Operating expenses 10,735 8,764 Operating profit 2,518 3,413 Other expenses (gains) Stock based compensation expense 192 251 General and administrative 1,011 936 Fair value adjustment for derivatives - (1,247) Foreign exchange loss / (gain) 42 63 Interest and financing fees (income) (121) (3) Other expense (income) (13) ----------------------- 1,111 - Income before taxes 1,407 3,413 Current income taxes provision 434 620 Future income taxes provision (recovery) (251) 226 -----------------------Net income and comprehensive income for the period 1,224 2,567 Retained earnings, beginning of period 22,986 10,775 Provision for dividends (1,625) (1,485) Retained earnings, end of period 22,585 11,857---------------------------------------------------------------------- Basic earnings per share (Note 5f) 0.025 0.054Diluted earnings per share (Note 5f) 0.025 0.053 Basic weighted average no. of shares 48,926,268 47,971,597Diluted weighted average no. of shares 49,893,268 48,763,335 Other comprehensive income at the beginning - -Unrealized gain and losses on translating financial statements of self-sustaining foreign operations (Note 1b) (19) -Accumulated other comprehensive income (19) -\* T \* T Uruguay Mineral Exploration Inc. Consolidated Statements of Cash Flows (Unaudited) (Thousands of United States Dollars, except where indicated) Three months ended August 31 August 31 2007 2006---------------------------------------------------------------------- $ $Operating activities Net income for the period 1,224 2,567 Adjustments for: Amortization, depletion and accretion 2,412 2,015 Deferred Stripping 453 (354) Future Income taxes (251) 226 Fair value adjustment of derivatives - (1,247) Compensation expense - stock based 192 251 Other 80 45 ------------------- 4,110 3,503 Net change in non-cash working capital balances (Note 8)) 51 (278) ------------------- 4,161 3,225 ------------------- Financing activities Proceeds from the issue of share capital 593 1,151 Payments of finance lease (46) (32) ------------------- 547 1,119 ------------------- Investing activities Net proceeds from sale of assets - 45 Purchase of property, plant and equipment and development costs (4,747) (3,399) Exploration expenditure (2,308) (1,376) ------------------- (7,055) (4,730) ------------------- Increase in cash and cash equivalents (2,347) (386) Cash and cash equivalents, beginning of period 13,978 8,931 ------------------- Cash and cash equivalents, end of period 11,631 8,545\* T Uruguay Mineral Exploration Inc. Notes to Consolidated Interim Financial Statements Unaudited (Thousands of United States Dollars, except where indicated) August 31, 2007 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 reference to "the Company" in these consolidated financial statementsincludes the parents and all of its subsidiaries. The preparation of consolidated financial statements in conformity with Canadiangenerally accepted accounting principles requires management to make estimatesand assumptions that affect the amounts reported in the consolidated financialstatements and accompanying notes. Actual results could differ from thoseestimates. The consolidated financial statements have, in management's opinion,been properly prepared using careful judgment with reasonable limits ofmateriality and within the framework of the significant accounting policiesreferred in our most recently reported annual consolidated financial statementswith the following exceptions: (a) Deferred Stripping Costs The Company is engaged in open pit mining incurring in costs of removingoverburden and waste rock (stripping costs) during mine development andproduction phase. Up to financial statements for the year ended May 2007, when stripping costs inthe production phase were higher with respect to those arising from applying theexpected average stripping ratio (the ratio of waste material to ore extracted)for the mine life, a portion of the waste removal costs has been attributed tofuture production and deferred, as it was considered a development cost incurredto gain access to the orebody. The amount deferred was subsequently amortized tothe income statement when the actual stripping ratio falls below the expectedaverage stripping ratio. These costs include the cost of drilling, blasting,loading and haulage of waste rock from the open pit to the waste pile. Effectively 1st June 2007, the Company adopted the new recommendations issued bythe Canadian Institute of Chartered accountants (EIC 160 "Stripping costsincurred in the Production Phase of a mining operation"), which require thecosts associated with the removal of overburden and another mine waste materialsthat are incurred in the production phase of mining operations to be charged toincome in the period in which they are incurred, except when the costs representa betterment to the mineral property. Costs represent betterment when thestripping activity provides access to reserves that would not have beenaccessible in the absence of the stripping activity. The new policy has been applied on a prospective basis to stripping costsincurred since 1st June 2007, and the accumulated deferred costs at thebeginning of the financial year are being amortized over the remaining reservesaccessed by the stripping activity using the units of production method. Theaccumulated deferred cost are shown under Property, Plant & Equipment while inthe past have been shown as Other Deferred costs. Figures for previous financialstatements have been adjusted to provide comparative figures. The adoption of this standard had no material financial impact on the financialstatements of the Company. (b) Comprehensive income and other comprehensive income Effective 1st of June 2007, the Company has applied the Canadian Institute ofChartered Accountants Handbook Sections 3855, "Financial Instruments -Recognition and Measurement", 1530, "Comprehensive Income", and 3865, "Hedges". Section 3855 prescribes when a financial instrument is to be recognized on thebalance sheet and at what amount. It also specifies how financial instrumentgains and losses are to be presented. This Section requires that: - All financial assets be measured at fair value on initial recognition andcertain financial assets to be measured at fair value subsequent to initialrecognition; - All financial liabilities be measured at fair value if they are classified asheld for trading purposes. Other financial liabilities are measured at amortizedcost using the effective interest method; - All derivative financial instruments be measured at fair value on the balancesheet, even when they are part of an effective hedging relationship. Section 1530 introduces a new requirement to temporarily present certain gainsand losses from changes in fair value outside net income. It includes unrealizedgains and losses, such as: changes in the currency translation adjustmentrelating to self-sustaining foreign operations; unrealized gains or losses onavailable-for-sale investments; and the effective portion of gains or losses onderivatives designated as cash flow hedges or hedges of the net investment inself-sustaining foreign operations. Section 3865 provides alternative treatments to Section 3855 for entities whichchoose to designate qualifying transactions as hedges for accounting purposes.It replaces and expands on Accounting Guideline 13 "Hedging Relationships", andthe hedging guidance in Section 1650 "Foreign Currency Translation" byspecifying how hedge accounting is applied and what disclosures are necessarywhen it is applied. : The Company has not accrued any other comprehensive income during the quarterbut actually carries a historical accumulated currency translation adjustmentfor self-sustaining foreign operations that is reclassified to accumulated othercomprehensive income upon transition to the new standard. Other than this transition adjustment, the adoption of these standards had nofinancial impact on the financial statements of the Company. 2. Property, Plant and Equipment \* T August 31, 2007 -------------------------------- Cost Accumulated Net Book Amortization Value and Depletion -------- -------------- --------Land and lease rights (a) $ 2,081 $ $ 2,081Plant and equipment (b) 25,408 12,197 13,211Asset retirement obligation 2,044 1,446 598Deferred stripping (Note 2a) 4,829 453 4,376Development costs (c) 21,539 8,256 13,283 -------- -------------- -------- $ 55,901 $ 22,352 $ 33,549 ======== ============== ======== May 31, 2007 -------------------------------- Cost Accumulated Net Book Amortization Value and Depletion -------- -------------- --------Land and lease rights $ 2,077 $ - $ 2,077Plant and equipment 25,411 12,391 13,020Asset retirement obligation 2,044 1,385 659Deferred stripping costs 4,829 - 4,829Development costs 17,210 7,081 10,129 -------- -------------- -------- $ 51,571 $ 20,857 $ 30,714 ======== ============== ========\* T (a) The plant is located on leased land. The lease expires in 2026. No furtherpayments are due on the lease. (b) Included in plant and equipment is $ 1,062 (May 2007 - $1,114) of majorspare parts that are amortized over 5 years. These major spare parts aremaintained to ensure the uninterrupted operation of the production equipmentbefore an unexpected breakdown or equipment failure. (c) Included in development costs are $ 2,825 (May 2007 - $2,830) ofpre-production stripping costs that have not yet began to be amortized as arecosts related to deposit from which production has not commenced. 3. Deferred Exploration and Development Costs \* T August 31, May 31, 2007 2007 ---------- --------Acquisition costs and option payments $ 967 $ 917Exploration, development and other property costs 13,814 13,729Capitalized indirect overheads 1,800 1,670 ---------- -------- $ 16,581 $16,316 ========== ======== Movements on deferred exploration and evaluation expenditure are shown hereinafter: August 31, May 31, 2007 2006 ---------- --------Capitalized exploration and evaluation expenditure at beginning $ 16,316 $11,184Payments for exploration during the year 2,308 7,076Transfer to Mine properties (2,043) 185Write off - (2,129) ---------- --------Capitalized exploration and evaluation expenditure at end $ 16,581 $16,316 ========== ========\* T (a) Explorations agreements & commitments: a1) The Company has signed in previous years a farm-in agreement giving it theoption to acquire a 100% interest in exploration permits along the FloridaGreenstone Belt of southern Uruguay owned by a Uruguayan-based mineralexploration called Delcosur S.A. Upon execution of the contract, the Companyacquired exploration information on the tenements for a consideration of $ 132comprised of cash of $ 120 and 20,000 non-transferable warrants to purchasecommon shares of the Company, exercisable for a period of two years from thedate of issuance, with a fair value of $ 12. The Company is required to spend $ 1,050 on exploration over three years toexercise its option to acquire 100% of Delcosur tenements. Upon exercising thisoption, the Company is required to grant Delcosur a 1% Net Smelter Return onmetal sales resulting from production sourced from the Delcosur tenements.Additionally, in the event that the Company develops a mining operation on thetenements, it will issue Delcosur or its nominees a further 350,000non-transferable warrants to purchase common shares of the Company at a pricecalculated at a 20% premium over the five day average trading price prior to theissuance and will be exercisable for a period of two years from the date ofissuance. a2) The Company has the right to purchase shares of a Uruguayan company, DavincoS.A (Presidente Terra project) pursuant to an agreement dated May 14, 1997.Under this agreement the Company has the option to purchase 80% of Davincoshares for the amount of $ 750 payable in installments, and the 20% once adecision has been made to continue mineral exploration, at a variable price. The initial installments for the purchase of the 80% of Davinco shares have beensettled in the past, and a remaining last installment per $ 275 is due withinfive days after Davinco issues a feasibility study on the mineral properties. a3) The Company has purchased in the past a Uruguayan diamond database toSouthern Era Diamonds Inc. Under the terms of the agreement Southern Era waspaid $ 20 and is entitled to an additional 0.8% royalty on any net diamond salesfrom any diamond deposit discovered by the Company in Uruguay. A further 0.2%royalty will be paid to a third party, who has an interest in the database. a4) For the Texas and Mal Abrigo projects the Company has committed to a 2% netprofits interest and a 2% net smelter return respectively, payable to thevendor. The Company may repurchase the net smelter return of the Mal Abrigoproject at any time by paying a lump sum of $ 650. (b) The Uruguay Mining legislation requires all mining titles to be supported byguarantees for any environmental rehabilitation requirements resulting fromexploration activities. The Company has facility agreements with Uruguayan localinsurance companies and banks to support the required guarantees. The totalguarantees provided at August 31, 2007 were approximately $ 1,673 (May 2007 - $1,618). 4. Long Term Debt \* T August 31, May 31, 2007 2007 ---------- -------Drawn debt facilitiesDeferred payment on net profit interest acquisition (a) 1,978 2,985Finance lease (b) 353 400 ---------- ------- 2,331 3,385Less current portion (2,166) (1,231) ---------- ------- $ 165 2,154 ========== =======\* T (a) On November 30, 2005 a subsidiary of the Company issued three unsecuredconvertible notes with a face value of $ 1,050 pursuant to the acquisition ofthe 10% net profit interest over key tenements within the Minas de Corralesproject. The three convertible notes are payable on or before July 30, 2006,July 30, 2007 and July 30, 2008 respectively. Each convertible note can beconverted into 250,000 ordinary shares during a 30 day period prior to the finalpayment date for each installment. No interest accrues on the notes. As a partof the agreement, an additional $ 1,050 is also payable after the thirdanniversary date if the average monthly price of gold for the previous 36 monthsexceeds $ 400 per ounce. Management believes this condition will be met and theadditional contingent payment has been recognized as a liability. The two unsecured convertible notes expiring July 30, 2006 and 2007 were paid incash and not converted into shares. The remaining convertible note plus theadditional contingent payment (for a total nominal value of $ 2,100) arerecorded at their net present value using an 8.5% discount rate. (b) 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 August 2007, $ 353 has been drawn under this facility. Thevehicles purchased are included under Property, Plant & Equipment as expressedin note 5... (c) Long term debt repayments are as follows: \* T Net profit interest Lease installmentsFinancial year ending debt Nominal Value Nominal value----------------------------------------------------------------------2008 1422009 2,100 1872010 242011 and beyond - --------------------------------------------Total Nominal debt 2,100 353 ============================================\* T 5. Equity Instruments (a) Authorized Unlimited number of Common Shares (b) Issued \* TCommon shares August 31, 2007 May 31, 2007 --------------------------------- Number Number (000s) Amount (000s) Amount ---------------------------------Issued and outstanding, beginning of period 48,531 $35,517 47,525 $33,595Issued for stock options exercised 395 780 756 910Issued for exercise of warrants for cash - - 250 1,012 ---------------------------------Issued and Outstanding 48,926 $36,297 48,531 $35,517Less: cumulative share issue costs (1) - (925) - (925) ---------------------------------Balance, end of period 48,926 $35,372 48,531 $34,592 =================================Weighted average number of shares 48,926 48,259 ====== ====== Warrants & convertible notes August 31, 2007 May 31, 2007 --------------------------------- Number Amount Number Amount ---------------------------------Issued and outstanding, beginning of period 520 $ 12 1,000 $ 188Issued for farm-in agreements 20 12Expired (250) - (250) -Exercised - (250) (188) ---------------------------------Issued and outstanding, end of period 270 $ 12 520 $ 12 ================================= Total equity instruments 49,196 $35,384 48,779 $34,604 ================================= (1) These costs have been recorded gross of any related tax effect, as the ultimate utilization of any related tax benefit is currently uncertain.\* T At August 31, 2007, the Company has 20,000 (May 31, 2007 -20,000) warrantsoutstanding and 250,000 convertible notes (May 31, 2007 - 500,000). During theperiod, the Company issued nil (2007 - 20,000) warrants. The outstandingwarrants are exercisable as follows: \* T Number of Warrants Warrant Price Expiry Date CDN$------------------------------------------------------------ 20,000 4.56 March 23, 2009\* T (c) Net profit interest acquisition convertible notes: The Company issued threeconvertible notes that provided the holder with the option to convert the note,with a face value of $ 1,050, into 250.000 ordinary shares. The note may beconverted during a 30 day period prior to the expiry date. The fair value of theoption to convert the notes into ordinary shares was calculated as thedifference between the nominal and fair value of the 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, 2008\* T The first two convertible notes expired in July 30, 2006 and 2007 and were notexercised. (d) Warrants issued for farm-in agreements: On March 23, 2007, in accordancewith an agreement with Delcosur the Company issued 20,000 non-transferablewarrants to purchase common shares of the Company at an exercise price of CDN$4.56, and exercisable for a period of two years from the date of issuance. Thefair value of these warrants was estimated using the Black Scholes optionpricing model with the following assumptions: Dividend yield (CAD$ 0.035),Expected volatility (41%), risk free rate (3.97%) and a weighed average life oftwo years. As such, a fair value of $ 12 was attributed to these warrants. (e) 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 quarter ending 31 August 2007, no options were granted and $ 192 (August31, 2006 $ 251) of compensation expense was recorded for the vesting of previousissues. At August 31, 2007 the aggregate unamortized fair value of unvestedstock options granted amounted to $ 989 (May 31 2007 - $ 1,181)". The following table summarizes information regarding the Company's outstandingoptions as at August 31, 2007: \* T Number Option Price Weighted of per Share Average Shares Range Exercise (000's) CDN $ Price CDN $ -------------------------------Balance at beginning of period 3,304 $0.75 - $5.50 $4.06Options - granted - - -Options - exercised or cancelled (400) $1.50 - $3.40 $1.74 -------Balance at end of year 2,904 $0.75 - $5.50 $4.38 =======\* T At year end there were 2,904,000 options outstanding, of which 1,389,333 areexercisable. The weighted average exercise price of the options outstanding atAugust 31, 2007 is CDN$ 4.38 (May 31, 2007 $ 4.06). The following table summarizes information about the stock options outstandingat August 31, 2007: \* T Outstanding Exercisable----------------------------------------------------- ---------------- Weighted Weighted average Weighted Range of average remaining average option Exercise contractual Exercise Options price Price life Options Price 000s CDN $ CDN $ Years 000s CDN $----------------------------------------------------- ================ 91 0.75 - 3.00 2.63 1.56 91 2.63 1,170 3.01 - 4.00 3.81 3.76 230 3.92 963 4.01 - 5.00 4.55 3.22 428 4.53 680 5.01 - 5.50 5.34 3.31 641 5.33-------------------- ------- 2,904 1,390==================== =======\* T (f) Earnings per share The reconciliation of basic and diluted earnings per share where relevant are asfollows: \* T August 31, August 31, 2007 2006 ----------- -----------Basic earnings per shareNumerator Net earnings available to shareholders $ 1,224 $ 2,567Denominator Weighted average earnings per share 48,926,268 47,971,597Basic earnings per share (cents per share) 0.025 0.054 August 31, August 31, 2007 2006 ----------- -----------Diluted earnings per shareNumerator Net earnings available to shareholders $ 1,224 $ 2,567Denominator Weighted average shares outstanding 48,926,268 47,971,597 Potential net incremental issue of shares from warrants - - Potential net incremental issue of shares from stock options 967,000 291,738 Potential net incremental issue of shares from convertible notes - 500,000 ----------- ----------- Shares outstanding plus assumed conversions 49,893,268 48,763,335 Diluted earnings per share (cents per share) 0.025 0.053\* T 6. Contributed Surplus The following table summarizes the movements in contributed surplus for theperiod ended August 31, 2007. \* T August 31, May 31, 2007 2007 ----------------------Balance at beginning of year $ 3,297 $ 1,625Stock based compensation 192 975Commitment to issue a stock options 917Transfer on exercise of options (187) (220) ----------------------Balance at end of year $ 3,302 $ 3,297 ======================\* T 7. Segment 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 mine and the exploration segment is devoted to the acquisition andexploration of mineral properties. \* T Gold Exploration Corporate Total ---------------------------------------For three months ending August 2007Net Sales 13,253 - - 13,253Amortization and depletion (2,264) (148) - (2,412)Net interest gain (loss) 121 - - 121Income tax 183 - - 183Net income (loss) 2,320 (766) (330) 1,224Capital Expenditure including exploration 4,747 2,308 - 7,055 As at 31 August 2007Property, plant and equipment 30,429 1,885 1,235 33,549Deferred exploration - 16,581 - 16,581 Gold Exploration Corporate Total ---------------------------------------For three months ending August 2006Net Sales 12,177 - - 12,177Amortization and depletion (2,015) - - (2,015)Net interest gain (loss) 3 - - 3Income tax 846 - - 846Net income (loss) 3,385 (509) (309) 2,567Capital Expenditure 3,399 1,376 - 4,775 As at 31 May 2007Property, plant and equipment 27,507 1,972 1,235 2 30,714Deferred exploration - 16,316 - 16,316\* T 8. Supplementary Cash Flow Information \* T(a) The net change in working capital items is as follows: Three months ended August 31 August 31 2007 2006---------------------------------------------------------------------- Prepaid expenses and other $ 148 $ (116) Accounts receivable 264 (488) Accounts payable and accrued liabilities 973 1,259 Inventory (1,334) (933) -------------------------- Net change in non-cash working capital balances $ 51 $ (278) -------------------------- (b) Other information Three months ended August 31 August 31 2007 2006------------------------------------------- ------------- ------------Cash interest paid $ 6 $ -Cash taxes paid - 28\* T Copyright Business Wire 2007