Patagonia Gold Regulatory News (PGD)

1 May 2008 07:01

Patagonia Gold PLC01 May 2008 Patagonia Gold plc ("Patagonia Gold" or "the Company") Final results for the year ended 31 December 2007 The Board of Patagonia Gold is pleased to announce its audited results for theyear to 31 December 2007. Chairman's statement I am pleased to present the audited results for the year ended 31 December 2007. This past year has seen a significant improvement in the fortunes of PatagoniaGold with the acquisition of Barrick's Santa Cruz exploration portfolio and thesubsequent successful exploration. This is the Group's first set of audited financial statements prepared underIFRS. A full explanation of the basis of accounting and the effects of thetransition to IFRS are set out in the following statement and notes. In additionto this, the most significant change is that exploration expenditure relating toa particular project will be written off until such time as the Board hasdetermined that the project is viable and will be developed. As a result the acquisition costs of £2,572,350 for the Barrick properties inSanta Cruz have been expensed. This has increased the loss for the year to£6,189,334 (2006: loss £17,002,754). The additional expenditure reflected thecost of increased drilling and exploration activities on the newly acquiredproperties and administrative expenses for the year. This expenditure has been financed by two equity fundraisings. In July 2007 weraised £2million by placing new ordinary shares at 8.5p per share and morerecently in January 2008 we raised £2.25million by placing new ordinary sharesat 5p per share. These fundraisings have been largely supported by Directors andtheir families and as a result the Argentinean Directors, their families andassociates speak for nearly 50 per cent. of the Company. Further fundraisingswill be required in order to advance the development programmes of the SantaCruz properties. Our drilling and exploration programmes on the Santa Cruz properties during 2007and early 2008 have produced excellent results, full details of these are setout in the Operations report which follows. It should be noted that theviability of potential gold production at the Lomada de Leiva Project iscurrently being assessed by consultants. In addition the exceptional drillingresults at the Cap-Oeste Project could determine that this project moves rapidlyto feasibility stage. The province of Santa Cruz is host to a number of important operating gold minesas well as to a vibrant petroleum industry. It has a well developedinfrastructure and a positive attitude both at government level and in thecommunities to the responsible exploitation of its mineral resources. PatagoniaGold has developed strong relationships with local communities and land ownersas well as with the relevant government departments. As I write this report, we are continuing to actively drill on two projects inthe Santa Cruz province and we look forward to positive results from theseprogrammes. We continue to hold valuable properties in the Chubut province whereexploration activities are suspended until such time as the ProvincialGovernment determines how and when mining and mineral activities can restart. Finally on behalf of the Board, I would like to thank all our operational staffin Argentina for the continued commitment and effort in the year and to thankour shareholders for their support. Sir John CravenChairman 1 May 2008 For more information, please contact:Bill Humphries/Richard Prickett David Bick / Mark LongsonPatagonia Gold Plc Square 1 ConsultingTel: + 44 (0)20 7409 7444 Tel : +44(0)20 7929 5599www.patagoniagold.comTrading Symbol PGD.L Simon Raggett / Angela Peace Alastair Stratton / Tim GrahamStrand Partners Ltd Matrix Corporate Capital LLPTel: +44(0)20 7409 3494 Tel : +44(0)20 7925 3300 Managing Director's report Patagonia Gold Plc's (PGD) Operations team has achieved outstanding success inits first year of exploration on the newly acquired properties in the Santa Cruzprovince, southern Argentina. Over 30,000 metres of drilling together with extensive field exploration havebeen carried out on the three advanced properties: La Paloma, containing theLomada de Leiva Project and the adjacent Breccia Sofia prospect; El Tranquilo,containing the Cap-Oeste Project and the nearby Breccia Valentina prospect andLa Manchuria, containing the Main Zone prospect. The Lomada de Leiva Project has been successfully advanced through drilling toCanadian National Instrument 43-101 (NI43-101) compliant status. This initialresource, of 161,346 ounces of gold in the measured and indicated categorieswith an additional Inferred resource of 73,725 ounces of gold, together with theexcellent metallurgical recoveries of plus 95 per cent. in 24 hours and the highprobability of increasing the resource from the surrounding prospects, hasencouraged PGD to progress Lomada de Leiva towards production. Accordingly a Scoping study was initiated in late 2007 and is currently beingfinalised. Meanwhile a new drilling campaign has commenced on both Lomada deLeiva and Breccia Sofia. To the south, drilling on the exciting Cap-Oeste Project has confirmed thepresence of a wide gold mineralised structure, with a core containing high gradeto bonanza gold and silver, extending over 1,200 metres along strike and up to160 metres in depth. Sufficient drilling has been completed to date on Cap-Oestefor an initial resource definition to NI43-101 standards. Independent engineershave been appointed and have visited site in preparation for commencement of thestudy in late May. Cap-Oeste remains open along strike and down dip. In addition there are othersimilar anomalous structures nearby. Drilling continues on the main structuretogether with exploratory drilling on these other structures. At La Manchuria, just 50 kilometres to the east of Cap-Oeste, drilling on theMain Zone prospect has confirmed and extended the high grade gold with bonanzasilver (up to 4,920 grammes per tonne) mineralisation to the south for 300metres. Interpretation of geophysics clearly shows the structure extendingfurther south for over two kilometres. Results are sufficiently encouraging for a resource infill and extensiondrilling campaign to be initiated this coming southern spring in October 2008. PGD has eight full time geologists, supported by two consulting geologists andover 30 technical staff, operating in Santa Cruz on the three advanced projectsand on exploration of other properties in our large prospective portfolio. Thisoperations team has worked together since inception of PGD and is highlyexperienced with both the geology and working in the Patagonia region. PGD maintains a strong awareness of its responsibilities towards the environmentand existing social structures. Careful attention is given to ensure that allexploration work is carried out strictly within the guidelines of the relevantmining and environmental acts. PGD attempts, where possible, to hire localpersonnel and use local contractors and suppliers. Santa Cruz is a mining friendly province and contains a very active petroleumindustry and accordingly all the infrastructure and understanding associatedwith exploration and mining. Bill HumphriesManaging Director 1 May 2008 Operations report Land holdings Patagonia Gold Plc, through its 100 per cent. owned subsidiary in Argentina,Patagonia Gold S.A. (PGSA), operates in five of the Argentine provinces with theemphasis in the Patagonia region. Total area held is 7,117 square kilometres. In February 2007, the Company and its wholly owned Argentine subsidiary,Patagonia Gold S.A. (PGSA) acquired the rights, title and interest in 70 miningand exploration claims and properties previously held by Barrick ExploracionesArgentina S.A. and Minera Rodeo S.A., being subsidiaries of Barrick GoldCorporation. The initial consideration for the Properties was an aggregate of £2,572,350 andcomprised (i) a cash payment by PGSA of US$800,000 and (ii) the issue by theCompany of £2,162,092.65 of loan notes ('Loan Notes') which were convertibleinto ordinary shares of 1p each in the capital of the Company at a conversionrate of 7.125p. Accordingly on conversion the Loan Notes represented 30,345,160shares being 10 per cent. of the Company's then issued capital. The Loan Noteswere converted on 28 February 2007. Under the terms of the acquisition agreement, PGSA has committed to complete aminimum level of expenditure of US$10 million on the Properties over a five yearperiod. (Note: The current rate of expenditure will achieve this in two years). A further cash payment of US$1.5 million will become payable by the Company upondelineation of a 200,000 oz or greater of gold or gold equivalent (NI43-101Indicated Resource) on the La Paloma Property Group. In addition the Company granted to Barrick an option to buy back up to 70 percent. interest in any particular Property group upon the delineation of agreater than 2 million oz of gold or gold equivalent (NI43-101 IndicatedResource) on that Property group going forward. SANTA CRUZ PROVINCE During the past year, PGD has completed a substantial exploration programme onits 100 per cent. owned properties in the Santa Cruz Province. Exploration efforts were concentrated on the Lomada de Leiva Project at LaPaloma, (the most advanced property in the portfolio), Cap Oeste Project on theEl Tranquilo property and La Manchuria. The volcanic plateau of the Deseado massif is 60,000 square kilometres in areaand hosts several mines and advanced projects such as Cerro Vanguardia, MinaMartha, Manantial Espejo, Huevos Verdes and Cerro Negro as well as numeroussmaller prospects and showings. These projects are low sulphidation epithermal"bonanza" vein style gold-silver deposits, the main target for exploration inthis region. LA PALOMA PROPERTY The La Paloma property block, covering over 44 square kilometres, is locatedapproximately 40km to the south of the town of Perito Moreno in the Santa Cruzprovince of Argentina and contains the Lomada de Leiva Project and the adjacentBreccia Sofia Prospect. Lomada de Leiva Project At Lomada de Leiva Project a drilling campaign, consisting of 62 drill holes for8,862 metres, was completed in the first half of 2007. The drilling was designedto validate historical drill data and to infill and extend the potentialresource for definition to Canadian National Instrument 43-101 (NI43-101)standards. The main zone of interest at Lomada de Leiva was drilled over 600 metres alongstrike intersecting ore grade widths greater than 20 metres and identifyingsignificant potential extending towards Breccia Sofia, some 500 metres to thenorth east. Drilling results not previously reported include: From Interval GradeHole No. metres metres Au g/tLPD-27 49.0 17.0 3.15LPD-32 6.0 10.0 2.54and 42.0 11.0 3.00LPD-34 38.0 36.0 3.52including 59.0 7.0 8.86LLR-04 49.0 28.0 5.71including 51.0 8.0 8.27 Drilling identified a second, near vertical, structure within thebreccia-hosting structural corridor. The higher-grade intersections appearassociated with the intersection of these two zones. In addition, drilling on the eastern margin of the main zone has revealed amineralised structure, which could represent a repetition of the gold bearingzone or a sub-parallel structure. A recently completed CSAMT (geophysical)survey has confirmed the potential to the east and south of the existingmineralisation as well as towards Breccia Sofia. Geology and mineralisation The geology of the Project area comprises a sub-horizontal sequence of Jurassicaged, rhyolitic flow and ignimbritic rocks of the Chon Aike Formation, which areinterpreted to occur at the margin of a large felsic flow dome complex. Gold mineralisation is dominated in the near surface by oxide goldmineralisation localised in a north-northeast trending, structural corridor,dipping steeply to the east containing brecciated and variably silicifiedvolcanic and tuffaceous rocks which have been cut by a network of fineanastomosing quartz veins and veinlets. The breccia also contains clasts ofchalcedonic quartz vein material. Gold is predominantly hosted in the kaolinizedfault breccia matrix but is also reporting in the vein quartz and earlierchalcedonic veins over combined widths up to 30 metres. Lomada de Leiva Gold Resource Chlumsky, Armbrust and Meyer, LLC. (CAM) of Lakewood, Colorado, was retained byPGD to independently define and describe the potential gold Resource at Lomadade Leiva, to comply with NI 43-101. Resource estimates at 0.30 grams per tonne gold (Au) cut-off for Lomada de Leivaare: Measured and Indicated at 161,346 ounces Au. and additional Inferred Resourcesof 73,725 ounces Au. The following table is an extract from CAM's report Table 1-1 Resource totals Cut-off Au ContainedResource type (g/t Au) Tonnes Grade (g/t) Au (Troy oz)Measured 0.30 1,427,628 1.125 51,633Indicated 0.30 3,574,388 0.955 109,713Measured + Indicated 0.30 5,002,016 1.003 161,346Inferred 0.30 3,412,271 0.672 73,725Measured 0.50 951,843 1.491 45,630Indicated 0.50 2,315,170 1.261 93,859Measured + Indicated 0.50 3,267,013 1.328 139,489Inferred 0.50 1,850,623 0.911 54,187Measured 1.00 454,530 2.357 34,451Indicated 1.00 1,035,423 1.958 65,194Measured + Indicated 1.00 1,489,953 2.080 99,645Inferred 1.00 456,543 1.628 23,890 Two thirds of the resource has been categorised as 'measured and indicated' thussubstantially reducing the additional amount of drilling required to advancethis deposit towards Reserve status. These results, supported with the high potential to develop additional resourcesat: Lomada de Leiva, the adjacent Breccia Sofia and nearby Cerro Vasco, aresufficiently encouraging for PGD to advance this Project towards possibleproduction. Accordingly, PGD appointed CAM as Independent Engineers to undertake a Scopingstudy (preliminary assessment) to determine potential economics for miningLomada de Leiva and to identify the target resource base that will supportmining on that project. The report on the study is expected in the secondquarter of 2008. Breccia Sofia prospect In conjunction with the Lomada de Leiva drill programme, 17 RC drill holes for2,500 metres were drilled at the adjacent Breccia Sofia prospect, infilling andextending the previous drilling. Drilling results included: From Interval GradeDrill Hole No. metres metres g/tBSR-02 92.0 1.0 27.10and 114.0 9.0 1.74BSR-06 90.0 4.0 2.88and 118.0 5.0 3.25BSR-15 38.0 3.0 2.85and 48.0 5.0 17.49BSR-16 25.0 7.0 2.61BSR-17 42.0 2.0 7.56 The values indicate that a broad zone of gold grades 160 metres down dip. Geology and mineralisation The Cap-Oeste Project geology is characterised by a sub horizontal +150 metrethick sequence of variably welded, ash/vitric tuff which overly a +100 metrethick, quartz crystal tuff unit. Mineralisation is controlled by a regionalscale NW striking fault system that has cut the volcanic stratigraphy which incross section indicates normal vertical displacement greater than 100 metre anda component of right-lateral strike-slip displacement which has juxtaposed theupper and lower tuff units. Breccia Valentina is interpreted as a structurally controlled phreatic brecciapipe characterised at surface by high level silica hosting highly anomalous goldin veins and breccias formed in association with an adjacent dome. The El Tranquilo property block also contains other highly prospective areas,which require further exploration in order to define the potential for drilltargets. The structure remains open at depth and along strike in both directions. Recently completed hi-resolution Landsat-style imagery has shown the mineralisedstructure currently being drilled at Cap-Oeste to be extremely robust formingpart of a structural zone, which not only continues outside the drill area butalso extends south towards the sub-parallel Breccia Valentina structure. There are several structures with signatures similar to the main Cap-Oestestructure in the immediate vicinity that have not yet been subject to detailedexploration but have previously reported anomalous gold values. A 1,500 metreexploration drill programme is currently being carried out to test several ofthese structures. Breccia Valentina Prospect In late 2007 11 drill holes, for a total of 2,410 metres, were drilled at theBreccia Valentina prospect, located approximately 6 kilometres south east fromCap-Oeste, returning encouraging results. Drilling results included: From IntervalDrill Hole No. metres metres Gold g/t Silver g/tBVA-002-D 26.0 12.5 2.38 12.05including 28.0 5.2 3.35 11.73and 128.0 7.0 2.43 38.0BVA-007-D 63.00 19.00 0.96 6.57including 76.00 5.00 1.93 8.30BVA-009-D 101.00 5.00 1.68 3.36 The above results indicate the potential for the gold tenor to improve withdepth. Further drilling on Breccia Valentina is being planned for the secondhalf of 2008. LA MANCHURIA PROPERTY The La Manchuria property of five expedientes covers 5.5 square kilometres andis located about 150 kilometres to the south east of the La Paloma block. The Main Zone Historic exploration work on the Main Zone included soil and rock chip sampling,geophysics, trenching to enable sawn channel sampling and two drill campaigns ofreverse circulation (RC) and diamond drill holes comprising 22 drill holes for atotal of 3,104 metres. In February-March 2008 PGD completed a 20 hole diamond drill programme, for atotal of 3,980 metres, designed to infill and twin historic drill holes as wellas expand the area of mineralisation and in order to plan a resource orientateddrill programme for the second half of this year. The drilling confirmed and expanded the Main Zone as well as discoveringadditional veining which remains open to the south. Results from the initial 15 holes are encouraging and include: From IntervalDrill Hole No. metres metres Gold g/t Silver g/tLM-001-D 52.50 0.80 32.42 61.50and 125.50 0.40 4.19 666.00LM-002-D 52.55 1.51 6.38 4,520.53LM-003-D 47.80 1.15 10.10 16.40LM-005-D 22.00 0.65 3.17 1,445.00LM-007-D 63.50 0.60 7.94 801.00and 87.80 0.50 2.76 1,060.00LM-008-D 62.30 1.50 10.90 21.10and 82.00 0.50 20.10 2,980.00and 90.00 0.50 20.20 509.00and 105.90 0.70 11.55 963.00LM-010-D 262.7 0.70 14.25 64.10and 266.5 1.50 14.85 3.90LM-011-D 71.3 0.80 13.80 38.70and 94.4 0.55 12.35 2,220.00and 172.5 0.50 5.82 1,980.00LM-012-D 192.6 0.55 7.79 4,920.00LM-014-D 103.8 1.20 10.30 735.00LM-015-D 60.70 1.00 20.10 23.30and 95.25 1.20 58.90 4,150.00 Results for the other 5 holes are pending and will be reported in due course. Geology and mineralisation Gold-silver mineralisation on the La Manchuria prospect is associated with alow- (to intermediate) sulphidation type epithermal quartz-(adularia-illite)vein system hosted within a shallow dipping sequence of Jurassic aged rhyolitetuffs and underlying andesites. Veins are characteristically narrow on averageless than 1 metre but contain bonanza grades of both gold and silver. The veinsare strongly structurally controlled with principle veins showing NW to NNWstrikes occurring in swarms and densely sheeted zones. The Manchuria 'Main Zone' is within the same regional corridor that contains theoperational mines, Mina Martha to the south and Huevos Verdes to the north. EXPLORATION The Patagonia Gold property 'Cerro Vasco' is located 10 kilometres to the northof Lomada de Leiva. Exploration has reported rock chip samples of 2.85 metres @44.2g/t gold in the central breccia area whilst, immediately to the south,reconnaissance identified copper-lead sulphides together with additional goldand silver mineralisation. The structures containing this mineralisation trendsouth towards the La Paloma block. PGD has applied for Cateo La Emilia covering 8,589 hectares, which effectivelyjoins the Cerro Vasco property to the La Paloma Project block. Exploration, inprogress, on La Emilia has identified very prospective geology with highlyanomalous rock chip sample results and significant mineralisation. Results todate from separate samples of vuggy silica, hydrothermal breccias and quartzveinlets include 8.11g/t Au, 136g/t Ag, 0.96 per cent. Cu as well as highlyanomalous lead significant barite. CHUBUT PROVINCE In June 2006, the Provincial Government of Chubut introduced a provisional lawfor up to three years banning mining and mineral exploration activities in aspecified area to the west side of the province. The exclusion area not only included PGD's principal asset, the Huemules mine,but also 85 per cent. of PGD's exploration properties, including the advancedCrespo project. Accordingly PGD suspended all exploration activities in Chubut until such timethat the Provincial Government determines how and when mining and mineralactivities can restart in Chubut. Summarised consolidated income statementfor the year ended 31 December 2007 2007 2006 Restated £ £Exploration costs (4,867,807) (1,653,426)Administration costs (1,367,727) (1,145,564)Impairment of goodwill - (15,054,025)Profit on disposal of HPD New Zealand - 873,595 LimitedFinance income 48,297 52,295Finance costs (2,097) (75,629) ------ ------Net result for the year (6,189,334) (17,002,754) ------ ------Loss per share (pence)Basic loss per share (1.86) (6.30)Diluted loss per share (1.86) (6.30) Summarised consolidated balance sheetat 31 December 2007 2007 2006 Restated £ £ASSETSNon-current assetsProperty, plant and equipment 66,199 40,214Available for sale financial assets 146,666 85,210Other receivables 351,316 227,032 ------ ------ 564,181 352,456 ------ ------Current assetsTrade and other receivables 224,630 202,682Cash at bank and in hand 661,793 966,143 ------ ------ 886,423 1,168,825 ------ ------Total assets 1,450,604 1,521,281 ------ ------LIABILITIESCurrent liabilitiesTrade and other payables (534,922) (301,220) ------ ------Total liabilities (534,922) (301,220) ------ ------Net assets 915,682 1,220,061 ------ ------ EQUITYEquity attributable to equity holders of the parentShare capital 3,579,229 2,731,065Share premium account 28,400,654 23,389,188Translation reserve 103,907 238,907Share based payment reserve 112,600 13,731Retained loss (31,280,708) (25,152,830) ------ ------Total equity 915,682 1,220,061 ------ ------ Summarised consolidated statement of changes in equity For the year ended 31 December 2007 Share Share based Share premium Translation payment Retained capital account reserve reserve loss Total £ £ £ £ £ £Balance at 31 2,522,814 20,577,439 - - (8,150,076) 14,950,177 December 2005Exchange - - 238,907 - - 238,907 differences on translation of foreign operationsNet income recognised directly in equityLoss for the - - - - (17,002,754) (17,002,754) period ------ ------ ------ ------ ------ ------Total recognised 2,522,814 20,577,439 238,907 - (25,152,830) (1,813,670) income and expense for the periodShare based - - - 13,731 - 13,731 paymentIssue of share capitalIssue by placing 156,251 2,343,749 - - - 2,500,000Conversion of loan 52,000 468,000 - - - 520,000 notes ------ ------ ------ ------ ------ ------Balance at 31 2,731,065 23,389,188 238,907 13,731 (25,152,830) 1,220,061 December 2006 Changes in equity for 2007Exchange - - (135,000) - - (135,000) differences on translation of foreign operationsNet income recognised directly in equityLoss for the - - - - (6,189,334) (6,189,334) period ------ ------ ------ ------ ------ ------Total recognised 2,731,065 23,389,188 103,907 13,731 (31,342,164) (5,104,273) income and expense for the periodShare based - - - 98,869 - 98,869 paymentRevaluation of - - - - 61,456 61,456 available for sale financial assetsIssue of share capitalIssue by placing 525,508 3,143,222 - - - 3,668,730Conversion of loan 303,451 1,858,641 - - - 2,162,092 notes Exercise of option 19,205 9,603 - - - 28,808 ------ ------ ------ ------ ------ ------Balance at 31 3,579,229 28,400,654 103,907 112,600 (31,280,708) 915,682 December 2007 ------ ------ ------ ------ ------ ------ Summarised consolidated cash flow statementFor the year ended 31 December 2007 Year to Year to 31 December 31 December 2007 2006 £ £Cash flow from operating activitiesLoss after taxation (6,189,334) (17,002,754)Adjustment for:Mineral rights acquired through 2,162,093 - issuance of Loan NotesInterest income (48,297) (52,295)Depreciation and impairment 24,279 15,072,099Profit on disposal of HPD New Zealand - (873,595) Limited(Increase) in trade and other (146,232) (158,802) receivablesIncrease/(decrease) in trade payables 233,702 (629,641)Settlement of convertible debt for - 520,000 equityShare based payments 98,869 13,731 ------ ------Net cash used in operating activities (3,864,920) (3,111,257) ------ ------Cash flows from investing activitiesInterest received 48,297 52,295Proceeds on disposal of Glass Earth - 893,994 sharesPurchase of property, plant and (50,264) 22,050 equipmentProceeds on disposal of HPD New - (25,093) Zealand Limited ------ ------Net cash (used in)/from investing (1,967) 943,246 activities ------ ------Cash flows from financing activitiesProceeds from issue of share capital 3,697,537 3,020,000 ------ ------Net cash from financing activities 3,697,537 3,020,000 ------ ------Net (decrease)/increase in cash and (169,350) 851,989 cash equivalents ------ ------Cash and cash equivalents at beginning 966,143 147,965 of periodEffects of foreign exchange movements (135,000) (33,811)Cash and cash equivalents at end of 661,793 966,143 period Principal accounting policies This statement has been prepared using accounting policies and presentationconsistent with those applied in the preparation of the statutory accounts ofthe Group. Basis of preparation The consolidated financial information has been prepared in accordance withapplicable International Financial Reporting Standards as adopted by the EU. The financial information has been prepared under the historical cost conventionexcept for available for sale financial assets and share based payments whichare stated at fair value. The measurement bases and principal accountingpolicies of the Group are set out below. The policies have changed from the previous year when the financial statementswere prepared under applicable United Kingdom Generally Accepted AccountingPrinciples (UK GAAP). The comparative information has been restated inaccordance with IFRS. The changes to accounting policies are explained in note1, together with the reconciliation of opening balances. The date of transitionto IFRS was 1 January 2006 (transition date). The Group has taken advantage of certain exemptions available under IFRS 1First-time adoption of International Financial Reporting Standards. Theexemptions used are explained under the respective accounting policy and in Note1. The accounting policies that have been applied in the opening balance sheet havealso been applied throughout all periods presented in this financialinformation. These accounting policies comply with each IFRS that is mandatoryfor accounting periods ending on 31 December 2007. Goodwill representing the excess of the cost of acquisition over the fair valueof the Group's share of the identifiable net assets acquired, is capitalised andreviewed annually for impairment by the Directors. Goodwill is carried at costless accumulated impairment losses. Negative goodwill is recognised immediatelyafter acquisition in the income statement. Goodwill written off to reserves prior to date of transition to IFRS remains inreserves. There is no re-instatement of goodwill that was amortised prior totransition to IFRS. Goodwill previously written off to reserves is not writtenback to the income statement on subsequent disposal. Going concern This consolidated financial information is prepared on a going concern basiswhich the Directors believe to be appropriate for the following reasons: In common with many exploration companies, the Company raises finance for itsexploration and appraisal activities in discrete tranches to finance itsactivities for limited periods only. Further funding will be required. The Directors have prepared cash flow information for 2008. On the basis of thecash flow information the Directors are of the opinion that the Company willrequire additional financial resources to enable the Group to undertake anoptimal programme of exploration appraisal activity over the next twelve months,and to meet its commitments. On 9 January 2008 the Company placed shares to a value of £2.25 million to fundworking capital and exploration expenditure. Adoption of IFRS 7 Financial Instruments: Disclosure All disclosures relating to financial instruments including all comparativeinformation have been updated to reflect the new requirements. The first timeapplication of IFRS 7, however, has not resulted in any prior-period adjustmentsof cash-flows, net income or balance sheet line items. Issued International Financial Reporting Standards ("IFRS's") andinterpretations ("IFRICS") that are not yet effective At the date of authorisation of this financial information, the followingStandards and Interpretations were in issue but are not yet effective: • IAS 1 Presentation of financial statements (revised) - effective 1 January 2009 • IAS 23 Borrowing costs (revised 2007) effective 1 January 2009 • IAS 27 (revised) Consolidated and separate financial statements - effective 1 January 2009. The standard requires the effects of all increases or decreases in the ownership of subsidiaries to be recorded in equity if there is no change in control. They will therefore no longer result in goodwill or gains and losses. The standard also specifies the accounting when control is lost. • Amendment to IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements - Puttable Financial Instruments and Obligations Arising on Liquidation effective 1 January 2009 • IFRS 2 (Amendment) Share based payment - Vesting conditions and cancellations - effective 1 January 2009 • IFRS 3 (Amendment) Business combinations - effective 1 January 2009 • IFRS 8 Operating Segments - effective 1 January 2009. The segmental information reported under the standard is that which the chief operating decision maker uses internally for evaluating the performance of operating segments and allocating resources to those segments. • IFRIC 11 (IFRS 2) Group and treasury share transactions - effective 1 March 2007 • IFRIC 12 - Service concession arrangements - effective 1 January 2008 • IFRIC 13 Customer loyalty programmes effective 1 July 2008 • IFRIC 14 (IAS 19) The limit on a defined benefit asset, minimum funding requirements and their interaction - effective 1 January 2008 The Directors anticipate that the adoption of these Standards andInterpretations in future periods will have no material impact on the financialstatements of the Group or Company. The Group and Company does not intend toapply any of these pronouncements early. Summarised notes to the financial information for the year ended 31 December 2007 1. Explanation of transition to IFRS As stated in the Basis of Preparation, this is the Group's first annualconsolidated financial information prepared in accordance with IFRS. IFRS 1 permits companies adopting IFRS for the first time to take certainexemptions from the full requirements of IFRS in the transition period. Thisfinancial information has been prepared on the basis of taking the followingexemptions: • Cumulative translation differences on foreign operations are deemed to be £nil at 1 January 2006. Any gains and losses recognised in the consolidated income statement on subsequent disposal of foreign operations will exclude translation differences arising prior to the transition date. • The entity has elected not to apply IAS 21 "The Effects of Changes in Foreign Exchange Rates" retrospectively to goodwill and fair value adjustments arising on business combinations before the Group's date of transition to IFRS. Such goodwill and fair value adjustments are not treated as foreign currency assets and so are not retranslated at each reporting date. • In accordance with the transitional provisions of IFRS 2, only those awards that were granted after 7 November 2002, and had not yet vested at 1 January 2006, are included. • IFRS 3 "Business Combinations" is applied from 1 January 2006 and not retrospectively to earlier business combinations. 2. Effect of IFRS application The valuation of the investments prior to 1 January 2006, the Group's date oftransition to IFRS, have not been restated to comply with IFRS 3 "BusinessCombinations". Goodwill arising from these investments of £15,054,025 has notbeen restated other than as set out in note below. Goodwill recognised by the Group on acquisition under UK GAAP was amortised overa period of 20 years. Under IFRS goodwill is not amortised, but tested annuallyfor impairment. The goodwill amortisation charge recognised in accordance withUK GAAP in 2006 was written back. However Patagonia Gold Plc performed an impairment review of goodwill at thedate of transition to IFRS. As a result of this review a £783,695 loss has beenrecognised in retained earnings at the date of transition in addition to the£14,270,330 already recognised under UK GAAP. There are no material effects on transition to the loss, cash flow or thebalance sheet. 3. Acquisition of Barrick's property portfolio in Santa Cruz Argentina The Group announced on 21 February 2007 that it had acquired the rights, titleand interest in 70 mining and exploration claims and properties previously heldby Barrick Exploraciones Argentina S.A. and Minera Rodeo S.A. being subsidiariesof Barrick Gold Corporation (the Vendors). The initial consideration for the Properties payable to the Vendors had anaggregate value of approximately £2,572,350 and comprised (i) a cash payment byPGSA of US$800,000 and (ii) the issue by the Company of £2,162,092.65 of LoanNotes, convertible into ordinary shares of 1p each in the capital of the Companyat a conversion rate of 7.125p per ordinary share the mid market closing priceat 20 February 2007. Accordingly, upon conversion, the Loan Notes would convertinto 30,345,160 ordinary shares, representing 10 per cent. of the Company's thenissued share capital, (as enlarged by the issue of such shares.) To the extentnot previously converted or redeemed, the Loan Notes would fall to be repaid bythe Company on 20 February 2009. The Loan Notes would become redeemable by theholders thereof after 20 February 2008 and to the extent that any Loan Notesremained outstanding at such time, interest would become payable on theoutstanding Loan Notes from the commencement date at the rate of 5.25 per cent.per annum. The Loan Notes could be converted by the Vendors at any time on orafter 27 February 2007 and by the Company any time after 31 May 2007. On 28 February 2007 the Company allotted 30,345,160 ordinary shares of 1p eachto Barrick pursuant to the conversion by the noteholders of all of the LoanNotes. A further cash payment of US$1.5 million will become payable to Barrick upon thedelineation of 200,000 oz or greater of gold or gold equivalent (NI 43-101Indicated Resource) on the La Paloma Property Group. In addition Patagonia GoldS.A. (PGSA) has granted Barrick an option to buy back up to a 70 per cent.interest in any particular Property group upon the delineation of the greater of2 million oz of gold or gold equivalent (NI 43-101 Indicated Resource) on thatProperty group. Under the terms of the acquisition agreement, PGSA has committed to complete aminimum level of expenditure of US$10 million on the Properties over a five yearperiod. This included a commitment of US$1.5 million in the first 18 months.This commitment has been satisfied and at 31 December 2007 expenditure on theseProperties amounted to approximately US$3.67 million. 4. Loss per share The potential ordinary shares which arise as a result of the options in issueare anti-dilutive under the terms of IAS 33 because they would not increase theloss per share. Accordingly there is no difference between the basic anddilutive loss per share. Reconciliations of the loss and weighted average number of shares used in thecalculations are set out below: Year to Year to 31 December 31 December 2007 2006Loss after tax (£) (6,189,334) (17,002,754)Weighted average number of shares 333,053,212 269,548,193Basic and diluted loss per share (pence) (1.86) (6.30) 5. Post balance sheet events Share Placing On 9 January 2008, the Company announced that it had placed 45,000,000 newordinary shares of 1p each in the Company at a price of 5.0p per share tofinance working capital and exploration expenditure. Certain of these shareswere placed with Directors, as set out below. Placing sharesDirector subscribedCarlos Miguens 16,822,960Gonzalo Tanoira 1,380,700 6. Publication of non statutory accounts The summary accounts set out above do not constitute statutory accounts asdefined by Section 240 of the UK Companies Act 1985. The summarised consolidatedbalance sheet at 31 December 2007 and the summarised consolidated incomestatement, summarised consolidated statement of changes in equity and thesummarised consolidated cash flow statement for the year then ended have beenextracted from the Group's 2007 statutory financial statements upon which theauditors' opinion is modified on the basis of an emphasis of matter opinion andgoing concern. The results for the year ended 31 December 2006 have beenextracted from the statutory accounts for that period, which contain a modifiedauditors' report on the basis of an emphasis of matter opinion and goingconcern. 7. Annual Report The Annual Report for the year ended 31 December 2007 will be posted toshareholders shortly. The Annual General Meeting of the Company will be held atthe Cavalry & Guards Club, 127 Piccadilly, London W1V 0PX, on 3 June 2008 at11.00 a.m. This information is provided by RNS The company news service from the London Stock Exchange