Patagonia Gold Regulatory News (PGD)

17 May 2006 07:00

Patagonia Gold PLC17 May 2006 PATAGONIA GOLD PLC PRELIMINARY RESULTS for the year ended 31 December 2005 Patagonia Gold plc announces its unaudited results for the year ended 31December 2005. Chairman's statement I am pleased to present the unaudited results for the year ended 31 December2005. It has been an active year with a number of achievements that have moved thebusiness forward and position it well for the future. Our achievements includethe completion of the acquisition from Meridian Gold of their interests in theHuemules, Leleque and Nahuel Pan properties at a cost of US$1.5 million. We nowown 100 per cent. of these highly prospective properties which flank the worldclass Esquel Project. Drilling completed in 2003 at the historic Huemules Gold Mine had establishedthe presence of a new high grade shoot containing bonanza grade gold withsubstantial silver and base metals credits. A study we commissioned byindependent consultants during 2005 has confirmed the potential for the size ofexisting deposits to be increased and for new discoveries. A request to re-openand extend the 2003 Environmental Impact Assessment of Meridian Gold has beenpresented to the Mines Directorate of Chubut and we await this approval. TheHuemules Project is covered in considerable detail in the Operations Reportwhich follows. Elsewhere we have continued with our parallel strategy of exploring our existingportfolio of properties and selective acquisition of new prospective propertiesfor exploration. We continue to concentrate our exploration efforts on oursubstantial portfolio of highly prospective properties within Chubut Province inPatagonia as we believe this largely unexplored province has the best potentialto host other major gold deposits similar to the Esquel Gold Project. We have invested considerable time and resources in community relations in orderto create support for our activities. As a result we have been successful inobtaining six Environmental Impact approvals for drilling campaigns this pastyear within Chubut and Rio Negro. These campaigns are currently in progress onthree of our principal properties, Crespo and Gastre in Chubut, and at Cerro ElMorro in Rio Negro. In order that the Company can dedicate all its resources and energies in thePatagonia region we announced in December 2005 that we had disposed of ourinterest in HPD New Zealand Limited to Glass Earth Limited. This transaction wascompleted in March 2006 and has resulted in us carrying an investment ofapproximately 15 per cent. in Glass Earth Limited which is now one of thelargest mineral explorers in New Zealand. The financial outcome for the year was in line with our budget expectations witha loss for the year of £2,856,653 (2004: £3,018,092) reflecting the expenditureon our exploration activities and the necessary administrative support. Thisproduced a loss per share of 1.1p, slightly down on the 1.3p per share reportedfor 2004. Shortly after the year ended we replenished our resources with a share placementwhich raised £2.5 million involving 15,625,000 new shares at 16p per share.Members of the Miguens/Bemberg family and of the Board contributed some 60 percent. of the new money and now hold over 45 per cent. and some 6 per cent. ofthe Company's share capital respectively. The sustained rally in the gold price of course enhances the prospective valueof our properties and substantially improves the economics of new mine financingand development. Finally, on behalf of the Board, I would like to thank our operational staff inSouth America for their commitment and efforts in the year and to thank ourshareholders for their continued support. We are confident that this will in duecourse be handsomely rewarded. Sir John CravenChairman 17 May 2006 Operations report Summary During the 2005-2006 period, Patagonia Gold Plc ("PGD") has been activelyexploring the Patagonia regions of Argentina and Chile with veteran experiencedmanagers leading a skilled team of competent geologists. Exploration ManagerRichard Jemielita a PhD in Economic Geology with 23 years of academic, surveyand industry experience worldwide, including 15 years in Latin America, joinedthe team in November. PGD is advancing rapidly on two fronts, with acquisitions of promisingproperties, and with field exploration of our own properties. Successful acquisitions this past year include the remaining 60 per cent. of theHuemules, Leleque and Nahuel Pan exploration companies. As a result of thisacquisition, PGD now owns 100 per cent. of a large portfolio of highlyprospective properties flanking the world class Esquel Project. In addition, PGDacquired the option to purchase Cherque I (Crespo Project - West Veins target)and Canadon Verde (Carrenleufu Area) properties. During the past year considerable efforts have been made with regard to propertyinvestigations in Northern Chile which, as a result, have opened the door forother opportunities in that region. Other Argentine properties offered in RioNegro and Chubut have been reviewed, but rejected as they did not meet ourexpectations. At the present time, Confidentiality Agreements have been signedwith several companies to review data on other promising properties inPatagonia. On the exploration front, PGD is continuing to build and explore its largeportfolio of highly prospective properties. Exploration of Patagonia Gold SA,our wholly owned subsidiary ("PGSA"), properties have led to the approval ofsix Environmental Impact Assessments in Chubut and Rio Negro and drilling ofthree targets in the Crespo Block, four targets in the Gastre Block, and theCerro El Morro Project in eastern Rio Negro. Reconnaissance Exploration has ledto the staking of five new Cateos covering highly prospective target areas inthe province of Chubut. All of these new properties contain quartz veins withsignificant gold and/or silver mineralization in surface samples. Considerable efforts have been exerted by PGSA staff in community relations,which has helped to enhance landowner relations, and has facilitated access byPGSA geologists to numerous areas for prospecting, both on PGSA properties andon "open ground." As well PGSA is leading the effort to organize a MiningExploration group in Patagonia, in order to better communicate our activities,maximize the contribution of our sector to sustainable development, define thebest practices for our industry, co-ordinate our work with the Provincial MinesDirectorates, and improve general public knowledge and support for mining andexploration in Patagonia. Acquisitions Huemules Project: With the purchase from Meridian of its 60 per cent. interest in Huemules,Leleque and Nahuel Pan, PGD now holds 100 per cent. interest in threeexploration companies, Huemules SA with 14 mineral properties, either owned orunder option, Leleque Exploracion SA, with 20 mineral properties, and MineraNahuel Pan SA, with 11 mineral properties. Huemules SA properties include thehistoric Huemules mine, which produced bonanza grade gold in the early 1990's. The Huemules fault-vein system, which controls epigenetic gold and silvermineralization, is over 3 kilometres long, and up to 20 metres wide.Mineralization consists of quartz stockworks (with minor carbonate) with pyrite,chalcopyrite, sphalerite and galena, accompanied by moderately intensechloritisation, silicification and clay. The Huemules vein system includes three sectors, designated South, Central andNorth. At Huemules South, the zone consists of a broad corridor of pyritized andirregularly argillized and/or silicified rock, up to 150 metres wide, containingmultiple lenticular, gold-bearing, quartz veins, veinlets and quartz brecciazones. At Huemules North and Central, ore commonly occurs in a well-definedquartz breccia zone of 5 to 15 metres width, containing disseminated pyrite andchalcopyrite, which encloses a single discrete gold-bearing vein. Drilling, completed at the historic Huemules Gold Mine in 2003, established thepresence of a new high-grade shoot containing bonanza grade gold withsubstantial silver and base metals credits, including Hole HND-03 assaying2,338.6 grammes per tonne gold ("g/t Au"), 1,020 grammes per tonne silver ("g/tAg"), 1.22 per cent. copper ("Cu"), 6.17 per cent. lead ("Pb") and 9.14 percent. zinc ("Zn") over 0.6 metres. The shoot remains open at depth with gradesimproving with depth. Following the acquisition of the Huemules properties, an evaluation of all theexisting data and historical reports was initiated. All significant drillintercepts from the Huemules North high grade zone were reviewed, and samplepulps were sent for re-assay. Re-assays confirmed that the original values wereaccurate. Chlumsky, Armbrust and Meyer L.L.C. ("CAM") an internationalresources consulting and engineering group from Denver, Colorado, USA, hascompleted an independent resource review, and recommended a plan for expandingthese resources. George Armbrust, consulting Geologist with CAM, reported aninferred resource of 364,657 tonnes @ 9.96g/t Au, for a total of 116,773 oz ofgold, distributed as below. This resource estimate was calculated at a 3.0 g/tAu cutoff grade, and a 1.5 metre minimum true width of vein. Huemules resource estimate Au cutoff grade 3.0g/t Cont. Cont. Cont. Au Ag Cu Pb Zn Cont. Cont. tonnes tonnes tonnesArea Tonnes g/t g/t % % % oz Au oz Ag Cu Pb ZnHuemulesNorte 115,607 18.94 30.18 0.85 0.63 1.31 70,393 112,176 984 724 1,512HuemulesSur 204,550 6.1 n/a n/a n/a n/a 40,379 - - - -HuemulesCentro 44,500 4.4 n/a n/a n/a n/a 6,001 - - - - ______ ____Total Huemules 364,657 9.96 116,773 ======= ==== ======= CAM also reported that "Exploration potential at Huemules remains very good withthe majority of past work focused on limited areas around the high grade shoots.All the identified shoots remain open at depth, often with the best grades atthe deeper levels, and a number of ore grade surface showings remain untested." A contract for access with the land owner at Huemules was successfullynegotiated and a work plan for restoration of the access roads and reclamationof the disturbance from previous mining and exploration activities was accepted.A request to re-open and extend the EIA of Meridian Gold from 2003 has beenpresented to the Mines Directorate of Chubut, and we are waiting for thisapproval. Other acquisitions: PGD has entered into a purchase option agreement with Meridian Gold for theexclusive right to acquire up to 100 per cent. of their exploration properties,Mina Cherque 1 and Cateo Canadon Verde. The Cherque I property, located withinthe PGSA Crespo Project, is host for the largest part of the West Veins target,with surface samples showing up to 64 g/t Au and 213 g/t Ag, as described in thefollowing Crespo section. The second property, Canadon Verde, is strategicallysituated in the centre of the highly prospective Carrenleufu Block, located inthe Andean cordillera along the border with Chile in south western Chubut. Theseproperties are currently under active exploration. Exploration Summary PGD is maintaining a high level of exploration activity in southern Argentinaand Chile with up to ten geologists and supporting technical staff, includingconsultants Nick Callan and Damien Koerber, operating in the Chubut, Rio Negroand Santa Cruz Provinces of Argentina and across the border in Chile.Internationally renowned consultants Dick Sillitoe and Greg Corbett are used onan as need basis. Exploration emphasis during the past year has been on the completion of surfacework followed by scout drilling on the Gastre and Crespo Projects, as well asCerro El Morro Project in Rio Negro. Reconnaissance work focused on generatingnew projects through exploration mapping and sampling of numerous ASTERalteration targets in Chubut, as well as follow-up mapping and sampling ofpreviously discovered anomalies. Argentina Advanced exploration properties Crespo Project: The project is located in south-western Chubut 200 kilometressoutheast of Esquel, the nearest town, Gobernador Costa, lies immediately to thenorth of the project. The area is predominantly arid and covered with low scrubwith the main activity being sheep farming. The Project area consists of 9Cateos and 5 properties under option, covering an area of 535 square kilometres.The dominant geology of the area mostly comprises subdued outcrops of Jurassicandesite volcanics forming a gentle undulating topography that offers goodaccess. Jurassic volcanics are proven hosts for low sulphidation epithermal goldveins across Patagonia including Esquel and Cerro Vanguardia. Exploration of the Crespo Block has reached an advanced stage and all areas towhich access has been granted have been thoroughly explored, mapped and sampled.Targets generated by this work, not including the previously drilled JasperVeins and Cabana Veins, include the West Veins, North Veins and Paleo Surfaceareas. The West Veins target consists of several sub-parallel quartz and quartz/carbonate veins up to 1.3 metres wide and extending some 850 metres in length inandesitic volcanics. These low/intermediate-sulphidation veins have producedsurface samples reporting up to 64g/t Au and 213g/t Ag, with 5 samples reportingmore than 10g/t Au. 17 RC drill holes were drilled on this target, for a totalof 1,424 metres. Preliminary assay results for the first 12 holes showed high values for zinc upto 2.7 per cent., and silver up to 46.8g/t, but sporadic values for goldgenerally below 1 g/t, although two intercepts of 16.18g/t and 1.01g/t gold werereported. The Paleosurface area is a geochemically anomalous and silicified area of some300 x 100 metres which has been thoroughly explored by soil sampling,geophysics, and trenching. Rock chip samples from outcrops here yielded low butanomalous gold and base metals values and high arsenic (>10,000 ppm), antimony(4420 ppm), and mercury (73.9 ppm). Geology, including fossil plant remains, andgeochemistry indicate that a paleosurface hot spring environment is preservedhere that may be related to epithermal mineralization. Potentially gold-silvermineralized veins or "feeder structures" could be preserved at depth. A drillprogram of six RC drill holes totalling 1135 metres was completed to intersectsuch veins or structures. Sample results are pending. The North Veins target was defined in 2005, and consists of multiple northwestand northeast trending silicified structures with surface samples reportingvalues up to 7.5 g/t Au and 43.9 g/t Ag (separate samples), Pb up to 2.96 percent., Zn up to 2540 ppm, and As >10,000 ppm. The mineralized structures are upto 1.5m in width, and cover a zone of about 1.5 kilometres in length. Ten RCdrill holes have been drilled to test the down-dip potential of this target,totalling approximately 725 metres. Results are pending. The discovery of new veins and the extension of known mineralization in theCrespo Project area confirm this as a gold rich district of high potential. The Gastre Block: consisting of 10 Cateos covering 900 square kilometres, islocated in north central Chubut within the proven mineralized belt extendingfrom IMA's Navidad silver project in the southeast to Aquiline's tenementscontaining the Calcatreu gold project in the northwest. The Gastre Block isconsidered extremely prospective for both base metal and precious metalmineralization. The mineralization discovered to date is related to a robustlinear structure in the same orientation and along strike from Navidad to theeast. Mapping and sampling over the Copper Hill and Copper Dome areas in the southernpart of the Gastre Block has been completed, including soil grid sampling andtrenching where warranted. Best samples to date include values of up to 3.2 percent. Cu and 170 g/t Ag in the Copper Hill area, and 1.05 g/t Au in the CopperDome area. To the north of Copper Hill, several new Au anomalous silicifiedstructures were identified, sampled, and trenched, with surface samples showingup to 5 g/t Au. Two kilometres to the south of Copper Hill, the "Sheeted Veins"area, where surface chip samples to date have reported values up to 10.35 g/t Auand 43.4 g/t Ag, has been sampled and mapped in detail. To test all of theseexciting targets, a comprehensive scout drilling programme has been completed,including 14 drill holes totalling approximately 1430 metres. Results arepending. A comprehensive stream sediment programme totalling some 510 stream sedimentsamples and 197 Bulk Leach Extractable Gold ("BLEG") samples was completedacross the entire Gastre Block (109,322 hectares), and successfully identifiedmineralization in Properties 1, 17, 18 and 23, including the Copper Dome, CopperHill and Sheeted Vein targets. All ASTER alteration targets in and surroundingthe Gastre property have been systematically examined by our geologists, mapped,and sampled. Property 36: The Cerro El Morro property which occupies 10,000 hectares ineastern Rio Negro is drill-ready, and PGSA has finally received the approval ofan EIA for drilling. A geophysics (combined magnetic, IP and chargeability)survey over the veins has better defined the controlling structures, which inplaces have no surface expression. One of the veins is now traceable for morethan a kilometre and contains values in the southeast of 3.67 g/t Au and 269 g/tAg increasing to 24.6 g/t Au and 233 g/t Ag in the northwest, with geophysicsindicating that the structure becomes considerably wider in the northwest. A 2,000 metres scout drill programme commenced in May, and results are pending. Other exploration properties El Zampal: This new area is located some 120 kilometres northwest of PuertoMadryn and was identified from the ASTER remote sensing study as a visiblealteration target. Due to the close proximity to Puerto Madryn and lowelevation, it is a year-around prospect, which can be worked in the comingwinter. Preliminary mapping and sampling has been completed, and mineralizationis interpreted to be an east-west-trending silver-lead mineralized structure,with an outcrop area of approximately 500 x 500 metres. The subtle outcroppingstructures form up to 30 metres wide zones that are open along strike (underthin alluvial cover) in both directions and comprise intense silicification,brecciation, and quartz-opaline silica veining, along with strong manganese -iron staining and gossan. Surface samples reported values of up to 114 g/t Agand 1.88 per cent. Pb. The area is largely covered with alluvial sediments, somore detail mapping, sampling and trenching is required to know the fullpotential of this target. Carrenleufu Block: This block of six Cateos, covering 600 square kilometres, islocated in the Andean cordillera along the border with Chile in south westernChubut. A stream sediment survey including panned concentration of stream bedsediments and large sediment samples for BLEG analysis over this remote areareturned several panned concentrate samples >1 g/t Au and up to 6 g/t Ag as wellas anomalous BLEG samples in different drainages. Visible gold in panned concentrates was observed. Follow-up work of the southernanomalous drainage identified more visible gold in panned concentrates.Exploration efforts are continuing to identify the source of this goldmineralization as well as investigating other anomalies in the property. Cerro Cuche: Several campaigns of initial reconnaissance and sampling have beencompleted within this large and exciting new property located southwest of Teckain Chubut. Alluvial gold operators have been working in drainages emanating fromthis property in years past. Initial work has identified significant quartzveins, vein stockworks, silicification and sulphide mineralization in the southsector, which have reported assay values of up to 1.305 g/t Au, 237 g/t Ag, 2.79per cent. copper, 1.4 per cent. lead, 0.63 per cent. zinc, and 496 ppm bismuth.Work is continuing to cover the central and northern sectors before weather andsnow cover close the season. Chile Exploration: A regional targeting study of Chilean Patagonia based onalteration, structure, and available (government) geochemical information wascompleted by our geologists in Chile, which identified 60 possible targets. Thebest 15 targets were selected for follow-up work this field season. To date, themost promising find is the La Poza - Paulina area (Target 14) located nearFachinal west of Chile Chico. Patagonia Gold SCM ("PGSCM") tenements Delta 1-16have been placed over this area. Mineralization at La Poza - Paulina is stratiform and stratabound carbonatereplacement style lead-zinc-silver. High silver values on PGD claims have beenfound in float (up to 396 g/t Ag) and in a massive galena outcrop (529 g/t Agand 25.6 per cent. Pb). Another outcrop located stratigraphically higherreported 84 g/t Ag, 5.26 per cent. Pb, and 0.54 per cent. Zn in a volcaniclastichorizon. There is significant potential here for discovery of more carbonatereplacement style lead-silver mineralization, and these types of deposits canattain significant tonnages and grades. Epithermal quartz-silica vein structures carrying anomalous gold, silver,arsenic and mercury values have also been identified on our Pedregoso claimslocated south of Chile Chico and southeast of Coeur d'Alene's Cerro Bayosilver-gold mine (reported reserves of 0.45 million ounces Au and 21 millionounces Ag). These exposures are interpreted to represent a higher level in theepithermal system relative to the Cerro Bayo deposits so they have potential atdepth and may, in fact, be a lateral extension of the Cerro Bayo epithermalsystem. Land Holdings PGD, through its three 100 per cent. controlled subsidiaries, PGSA and MinamaluSA in Argentina, and PGSCM in Chile, holds exploration or mineral exploitationpermits or has under option or option to purchase the following property areas: Argentina • Patagonia total 5,834 square kilometres Chile • Region XI 88 square kilometres The unaudited results of the Group for the full year 2005, with comparativefigures for 2004 are set out below: Consolidated profit and loss accountfor the year ended 31 December 2005 Note 2005 2004 £ £Administrative expenses and exploration costs (2,119,173) (2,314,904)Amortisation of goodwill (793,000) (757,520) _________ _________Operating loss (2,912,173) (3,072,424)Share of operating loss in associate (29,665) - _________ _________Total operating loss:Group and share of associate (2,941,838) (3,072,424)Interest receivable 85,185 54,332 _________ _________Loss on ordinary activities before taxation (2,856,653) (3,018,092)Tax on loss on ordinary activities - - _________ _________Retained loss for the year (2,856,653) (3,018,092) ========= =========Loss per share (basic and diluted) 2 (1.1p) (1.3p) The unaudited position of the Group as at 31 December 2005, with comparativefigures for 2004 are set out below Consolidated balance sheetat 31 December 2005 Note 2005 2004 £ £Fixed assetsIntangible assets - goodwill 15,054,025 14,865,923Tangible fixed assets 62,379 45,240Investments 85,210 85,210 _________ _________Total fixed assets 15,201,614 14,996,373 _________ _________DebtorsAmounts falling due over one year 271,987 235,663 _________ _________Current assetsDebtors 183,877 106,692Cash at bank and in hand 147,965 3,299,916 _________ _________ 331,842 3,406,608Creditors: amounts falling due within one year (833,161) (787,134) _________ _________Net current (liabilities)/assets (501,319) 2,619,474 _________ _________Total assets less current liabilities 14,972,282 17,851,510Creditors: Amount falling due after more thanone year (22,105) (61,340) _________ _________Net assets 14,950,177 17,790,170 ========= =========Capital and reservesCalled up share capital 2,522,814 2,522,814Share premium account 20,577,439 20,577,439Profit and loss account (8,150,076) (5,310,083) _________ _________Equity shareholders' funds 3 14,950,177 17,790,170 ========= ========= The unaudited statement of Group total recognised gains and losses for the fullyear 2005, with comparative figures for 2004 is set out below Consolidated statement of total recognised gains and lossesfor the year ended 31 December 2005 2005 2004 £ £Loss for the financial year (2,856,653) (3,018,092)Net exchange difference on the retranslation of net investments 16,660 (188,319) _________ _________Total gains and losses since last annual report (2,839,993) (3,206,411) ========= ========= The unaudited cash flows of the Group for the full year 2005, with comparativefigures for 2004 are set out below Consolidated cash flow statementfor the year ended 31 December 2005 Note 2005 2004 £ £Net cash outflow from operating activities 4 (2,171,990) (2,590,954)Returns on investments and servicing of finance 85,185 54,332Capital expenditure and financial investment (220,731) (12,465)Acquisitions and disposals 5 (844,415) 70 _________ _________Net cash outflow before use of liquid resourcesand financing (3,151,951) (2,549,017)Management of liquid resources 5 2,980,777 (138,630)Financing - 2,765,514 _________ _________(Decrease)/increase in cash in the year (171,174) 77,867 ========= ========= Notes to the preliminary results statement 1. Basis of preparation The financial information has been prepared on the same basis and using the sameaccounting policies as applied in drawing up the Company's statutory financialstatements for the year ended 31 December 2004. Publication of non statutory accounts The financial information included in this document is unaudited and does notcomprise statutory accounts within the meaning of section 240 of the CompaniesAct 1985. In the opinion of the directors the financial information for thisperiod presents fairly the financial position, results of operations andcashflows for the period in conformity with generally accepted accountingprinciples. The financial information for the 12 months ended 31 December 2004has been derived from the group's audited financial statements for that periodas filed with the Registrar of Companies and does not constitute the statutoryfinancial statements for that period. The auditors have reported on the 2004accounts; their report was unqualified and did not contain any statement undersection 237 (2) or (3) of the Companies Act 1985. The principal accounting policies of the company have remained unchanged fromthe previous year except for the following new standards which have been adoptedfor the first time: FRS 17 'Retirements benefits' FRS 21 'Events after the balance sheet date' FRS 22 'Earnings per share' FRS 25 'Financial Instruments: Disclosure and Presentation' - presentation requirements The adoption of the above mentioned accounting standards has not had a materialimpact on the group results. In common with many exploration companies, the Company raises finance for itsexploration and appraisal activities in discrete tranches. Further funding israised as and when required. However there is no guarantee that additionalfunding will be forthcoming. The Directors are of the opinion that the cash raised in the Group shareplacement which was undertaken on 24 January 2006 will be adequate to enable theGroup to undertake its planned exploration and appraisal activities for the nexttwelve months and accordingly have prepared the accounts on a going concernbasis. 2. Loss per share Weighted Weighted average average number of 2005 per number of 2004 per £ shares share £ shares shareLossattributable toshareholders (2,856,653) 252,281,435 (1.1p) (3,018,092) 227,261,899 (1.3p) ========= ========= ========= ========= ========= ========= There is no difference between the basic and diluted loss per share. 3. Reconciliation of movements in equity shareholders' funds 2005 2004 £ £ Loss attributable to shareholders (2,856,653) (3,018,092)Exchange differences arising on retranslation 16,660 (188,319)Issues of shares - 2,765,514 _________ _________Net decrease in shareholders' funds (2,839,993) (440,897)Equity shareholders' funds at beginning of year 17,790,170 18,231,067 _________ _________Equity shareholders' funds at end of year 14,950,177 17,790,170 ========= ========= 4. Reconciliation of operating loss to net cash outflow from operatingactivities 2005 2004 £ £Operating loss: Group (2004: Group and share of jointventure and associate) (2,941,838) (3,072,424)Depreciation and amortisation 833,892 777,816(Increase)/decrease in debtors (36,829) (263,825)(Decrease)/increase in creditors (78,985) (32,521)Increase in other provisions 51,770 - _________ _________Net cash outflow from operating activities (2,171,990) (2,590,954) ========= ========= 5. Analysis of cash flows for headings netting in the cash flow statement 2005 2004 £ £Returns on investments and servicing of financeBank interest received 85,185 54,332 ========= =========Capital expenditure and financial investmentPayments to acquire tangible fixed assets (51,850) (12,465)Funding of associate (168,881) - _________ _________ (220,731) (12,465) ========= =========Acquisitions and disposalsAcquisition of additional interest in associates (844,595) -Cash acquired on acquisition of Minamalu SA 180 70 _________ _________ (844,415) 70 ========= =========Management of liquid resourcesWithdrawals from /(increases to) short term deposits 2,980,777 (138,630) ========= =========FinancingIssue of share capital - 2,800,750Expenses in connection with the issue of shares - (35,236) _________ _________ - 2,765,514 ========= ========= 6. Acquisition Year ended 31 December 2005 On 8 December 2004 the Group acquired the entire share capital of Minamalu SA,an Argentine exploration company. The principal assets of that company were 40per cent. holdings in Huemules SA, Leleque Exploracion SA and Minera Nahuel PanSA which hold mineral properties in Argentina. The consideration for theacquisition was £520,000 and was satisfied by the issue to the vendors ofMinamalu of £520,000 unsecured convertible loan notes 2007 of Patagonia GoldPlc. On 28 October 2005, the outstanding 60 per cent. shareholdings in the abovethree associates of Minamalu were acquired for a further consideration ofUS$1,500,000 (£844,595). Net book Fair value Fair value of value adjustment net assets £ £ £Intangible assets 1,249,628 (1,249,628) -Tangible fixed assets 847 (847) -Non current debtors 24,170 - 24,170Amounts owed to group (76,625) - (76,625)Cash at bank and in hand 180 - 180Creditors (175,237) - (175,237) _______ _______ _______Net assets/(liabilities) 1,022,963 (1,250,475) (227,512) _______ _______ _______Existing 40 per cent. of net liabilities 91,005 _______Net liabilities acquired (136,507)Cash paid as consideration 844,595 _______Goodwill arising on acquisition 981,102 ======= The fair value adjustment to intangible assets has been made to write off theintangible assets included in the net book value to align accounting policieswith the Group. 7. Analysis of net funds At 1 At 31 January December 2005 £ Cashflow £ 2005 £Bank and cash balances 224,916 (171,174) 53,742Short term deposits 3,075,000 (2,980,777) 94,223Convertible loan notes (520,000) - (520,000) _______ _______ _______Net funds 2,779,916 (3,151,951) (372,035) ======= ======= ======= There were no material differences between the fair value and the book value ofthe Group's financial assets and liabilities as at 31 December 2005 and 31December 2004. 8. Post balance sheet events Disposal of HPD New Zealand Limited The Company announced on 23 December 2005 that an agreement had been reached on22 December 2005 for Glass Earth Limited, a New Zealand company, to acquire allthe issued and outstanding shares of HPD New Zealand Limited which were held bythe Company's wholly owned subsidiary, HPD Investments Limited. Theconsideration payable by Glass Earth Limited is 12,665,000 common shares and6,332,500 share warrants with a strike price of C$0.25 which are exercisable fora period of two years. The disposal was completed on 29 March 2006, when theclosing share price for Glass Earth Limited was C$0.17 per share. Share Placing On 17 January 2006, the Company announced that it has placed 15,625,000 newordinary shares of 1p each in the Company at a price of 16p per share to financeworking capital and exploration expenditure. Certain of these shares were placedwith Directors, as set out below. Placing sharesDirector subscribedSir John Craven 1,562,500Carlos Miguens 2,668,568William Humphries 390,625Richard Prickett 390,625 9. Annual Report The Annual Report for the year ended 31 December 2005 will be posted toshareholders shortly. The Annual General Meeting of the Company will be held onThursday, 22 June 2006 at 11.00 am at the Cavalry & Guards Club, 127 Piccadilly,London W1V 0PX. 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