Patagonia Gold Regulatory News (PGD)

Patagonia Gold

("Patagonia Gold" or the "Company")

Final Results

Patagonia Gold Plc (AIM: PGD), the advanced mining and exploration company with gold and silver projects in the southern Patagonia region of Argentina, announces the financial results for the year ended 31 December 2013. These preliminary results are presented in United States dollars ("$") unless otherwise stated.

2013 FINANCIAL HIGHLIGHTS

· Total revenue of $10.18 million (2012: $nil) recognised from commercial production of gold from 1 July 2013 to 31 December 2013. Revenue received from the sale of gold and silver recovered from Lomada trial heap leach project to 30 June 2013 offset against the capitalised costs of Lomada Project development

· On 27 February 2013, the Company raised $9.4 million in equity capital before expenses to fund exploration and drilling expenditures on the Cap-Oeste and Cap-Oeste South East ("COSE") Projects and to provide general working capital for the Company.

· As at 31 December 2013, the Company had approximately $981,000 (2012: $4.7 million) in cash and cash equivalents.

Subsequent Events

· Total gold production to the end of February 2014 is equal to 16,426 ounces for a revenue of $22 million.

2013 OPERATIONAL HIGHLIGHTS

· Trial heap leach at Lomada expanded to capacity of 315,000 tonnes.

· Construction and commissioning of main heap leach pad and facilities completed in Q4 2013.

· Nameplate production capacity of 1,750 ounces per month achieved during Q4 2013.

· Decision made to expand mining operations at Lomada Project to 3,000 ounces per month, targeting an annual production of 31,500 ounces for 2014 calendar year.

· Drilling programme totalling 2,475m completed during Q1 2013, targeting anomaly between Cap-Oeste and COSE and encountering broad zones of low grade mineralisation.

· Process testwork continued throughout 2013 at COSE, with preliminary testwork showing in excess of 97% gold and 98% continued silver will report to a concentrate and can then be leached.

· A nine hole, 1,259 metre drill programme completed at La Manchuria in May 2013.

The Annual General Meeting of the Company will be held on Wednesday, 25 June 2014 at 11.00 am at The Millennium Hotel London Mayfair, Grosvenor Square, London W1K 2HP.

The Annual Report for the year ended 31 December 2013 will be posted to shareholders in due course.

The following financial statements for the Company are abbreviated versions. The Company's complete financial statements for the twelve months ended 31 December 2013 with the notes thereto will be available on Patagonia Gold's website at www.patagoniagold.com in due course. All amounts are in US$ thousands, except share and per share amounts.

For more information, please contact:

Chairman's Statement

I am pleased to present the 2013 Annual Report of Patagonia Gold Plc.

During 2013, Patagonia Gold has concentrated on completing and commissioning our Lomada heap leach project. This was achieved in Q3 2013 with the design recovery of 1,750 ounces of gold per month generating cash flow for the Company from production for the first time.

For the second year running, 2013 proved to be very challenging for the capital markets for mining. Patagonia Gold, however, has continued its growth through this period by focusing on the commissioning of the Lomada Project. The Company has achieved this by raising short-term bank debt to cover necessary sustaining capital, to be repaid with proceeds from gold sales.

As part of its strategy to streamline costs and remain efficient, the Company decided to de-list from the Canadian TSX Stock Exchange. This was accomplished in July 2013 and has since reduced corporate overheads allowing greater funds to be applied towards the development of its projects. The success of the Lomada heap leach project with its low costs and high returns has encouraged management to press ahead with a similar heap leach project at Cap-Oeste which will substantially increase our cash flow and reduce our overhead and operational costs. The project is planned for start-up in Q1 2015 subject to receiving environmental permits and procuring funding.

Of tremendous importance during 2013 was the effort and collaboration of the management team and all our staff. I would like to thank them on behalf of the Board of Directors. Their hard work is greatly appreciated and we count on them to continue their contribution to the successful growth of Patagonia Gold.

Looking ahead, 2014 will be a year of achievement as Patagonia Gold attains significant milestones in production and exploration. I look forward to reporting further developments and growth to our shareholders in the upcoming year.

Carlos Miguens

Non-Executive Chairman

16 May 2014

Report from the Managing Director/Chief Executive Officer

Patagonia Gold has continued its successful trajectory through 2013 with the construction and commissioning of the main pad and facilities at the Lomada de Leiva heap leach project ("Lomada Project") located in the province of Santa Cruz, Argentina. Full nameplate production capacity of 1,750 ounces per month of gold production was reached during the fourth quarter of 2013.

Total gold production to the end of February 2014 is equal to 16,426 ounces for a revenue of $22 million. The revenue gained from gold sales has been a vital component of Patagonia Gold's growth strategy, enabling continued exploration and development of the Company's other highly-prospective properties including Patagonia Gold's flagship Cap-Oeste Project.

By becoming a producer, Patagonia Gold has infused certainty into its financial position during a time when global market conditions continue to be turbulent. With this in mind, Patagonia Gold decided in January 2014 to expand mining operations at the Lomada Project to 3,000 ounces per month and target an annual production of 31,500 ounces for the 2014 calendar year. By expanding gold production at its Lomada Project to 3,000 ounces per month, Patagonia Gold projects a cash cost reduction to $550 per ounce an almost $100 per ounce savings over the current production cash cost.

Preparations for the mine expansion are currently underway. Additional equipment to expand the mining fleet, requiring a disbursement of $ 2.1 million represents the bulk of the capital expenditure and will be delivered to Argentina by the end of May. Expansion of the main pad has been completed and final lining work is being carried on cells two and four; a total capacity of 1.5MT has now been lined and is ready for loading. The existing plant and gold smelting facilities will not require upgrading as they are already capable of processing plus 40,000 ounces per annum.

Through the past year and into 2014, the Company has continued its plans to develop the flagship Cap-Oeste Project. Patagonia Gold's objective is to expand the existing resource base of 1.5 million ounces of high grade gold-silver resource delineated to date over a 2.1 km strike extent through exploration and drilling, and to develop the main project towards production.

Following the success of the Lomada project the Company has decided to advance Cap-Oeste to production in two phases; the first phase being the construction of a 50,000 ounce per annum capacity heap leach processing facility for the approximately 200,000 ounces of medium grade oxide resource. Engineering and metallurgical studies are well advanced and, subject to available finance and permitting, purchasing and construction will commence later this year for start-up in the first half of 2015. The targeted combined annual production from the two heap leach projects is 83,000 ounces of gold equivalent generating in excess of $100 million per annum of high margin revenue which will provide significant funding towards exploration drilling and the development of the main Cap-Oeste project.

The second phase will entail the construction of a processing facility capable of treating both the high grade sulphide hosted mineralisation at Cap-Oeste and the bonanza grade COSE ore to minimise capital and maximise operating efficiencies. A full updated mine plan and resource estimate will be completed as part of the ongoing feasibility study, scheduled for completion Q4 2014.

Exploration of the Company's large portfolio of properties over the past year has concentrated mainly on field work with trenching on the El Tranquilo Block where numerous drill targets have been identified and on the Manchuria Block where exploration together with a small drill program has continued to highlight the potential of this area to become a stand-alone mine.

Patagonia Gold's exploration over the next year will focus on the delineation of oxide deposits with heap leachable material to supplement the Lomada and Cap-Oeste heap leach feed. Drilling and geophysics programmes have been programmed for 2014 to further explore the El Tranquilo Block, an area containing the Cap-Oeste and COSE deposits but remaining largely unexplored to-date, which Patagonia Gold believes holds vast potential to host further economic gold and silver mineralisation.

The Company has accomplished significant milestones over the past year due to the dedication and abilities of itsmanagement, staff and technical team. The year ahead will see Patagonia Gold continue to grow and succeed as it moves towards its expanded gold production goals.

Bill Humphries

Managing Director/Chief Executive Officer

16 May 2014

Company Overview

Patagonia Gold Plc ("Patagonia" or the "Company") is a gold and silver mining and exploration company operating in Argentina. The Company's growth strategy aims to develop a number of projects located in the province of Santa Cruz in the southern Patagonia region of Argentina, a mineral-rich region that hosts several medium-sized producing assets such as the Cerro Vanguardia Mine (AngloGold Ashanti), Manantial Espejo (Pan American Silver Corp.), San Jose mine (Hochschild) and the world-class Cerro Negro mine (Goldcorp Inc.) currently under development.

The Company holds directly or indirectly through its subsidiaries or under option agreements, the mineral rights to over 220 property interests in Argentina and Chile. These include the mineral rights to 67 property interests in the province of Santa Cruz covering approximately 190,000 hectares held by the Company's 90%-owned Argentinian subsidiary, Patagonia Gold S.A. ("PGSA") and to 51 property interests covering approximately 156,000 hectares held by the 100%-owned Argentinian subsidiary Minera Minamalu S.A. ("Minamalu").

 The Company's operations in Santa Cruz are managed and operated through PGSA. The land holdings in Santa Cruz include approximately 200,000 hectares in the very prospective volcanic plateau of the Deseado Massif acquired from Barrick Gold Corporation ("Barrick") in 2007, and a further 100,000 hectares acquired from the Santa Cruz government's wholly owned mining company, Fomicruz Minero de Santa Cruz Sociedad del Estado ("Fomicruz") in 2011.

Fomicruz obtained 10% of PGSA in return for the rights to explore, develop and mine 100,000 hectares of Fomicruz's prospective mining properties. Patagonia benefits from having the Santa Cruz government as a strategic partner in developing a number of PGSA's projects, including the Lomada de Leiva gold project (the "Lomada Project"), Patagonia's flagship project the Cap-Oeste gold and silver project (the "Cap-Oeste Project"), the Cap-Oeste South-East Project (the "COSE Project") and the La Manchuria property block.

Patagonia Gold's Properties

Santa Cruz is the location of PGSA's four main properties. Cap-Oeste is the flagship project; the main focus of the Company is to bring the Cap-Oeste Project into development as a stand-alone mine. Two kilometres along strike from Cap-Oeste is the smaller but strategically vital Cap-Oeste South-East (COSE) Project. The Lomada de Leiva ("Lomada Project") and La Manchuria Projects are 120 kilometres and 50 kilometres away, respectively.

The Lomada Project is located to the northwest close to Cerro Negro and the La Manchuria Project is situated within a regional corridor 50km to the southeast. The other exploration leases within the PGSA portfolio are shown on the map along with the locations of the major producing and late stage development assets currently within the Deseado Massif.

Patagonia's flagship project is the Cap-Oeste Project, located in the El Tranquilo property block approximately 65 kilometres southeast of the town of Bajo Caracoles in Santa Cruz. The Company's aim is to become a 100,000 ounce per annum gold equivalent producer in the near term, with a tentative timeline for construction of stage 1 commencing in mid-2014 and culminating in gold and silver production in early 2015. COSE and the Cap-Oeste sulphide mineralisation will be developed in unison in the following years to minimise capital and maximise operating efficiencies at the sites.

The Company plans to commence development and mining of the COSE Project as a means of generating significant near-term cash flow to self-finance a sizeable portion of the development requirements for the Cap-Oeste Project.

The La Manchuria property block is located approximately 50 kilometres to the southeast of the El Tranquilo property block and hosts the La Manchuria Project. The Company also has a number of other exploration leases within the Deseado Massif.

Several of PGSA's properties host mineralisation that is not typical of epithermal vein systems. The properties are characterised by low sulphidation, epithermal style gold-silver deposits hosted within hydrothermal breccias or fault hosted breccias, with widths up to 35 metres of Bonanza grade mineralisation being intersected. The Cap-Oeste Project falls into this category, as does the COSE Project. Classic low sulphidation epithermal veins with high grade Au-Ag intersected within narrow steeply dipping structures characterize other properties. The diversity and varied mineralisation styles differ with regards to location within the Deseado Massif.

Since the property acquisition from Barrick in 2007, the Company has rapidly grown its resource base through the implementation of a thorough and aggressive exploration and development program.

Operations Report

Lomada de Leiva Project

The Lomada de Leiva ("Lomada") Project is spearheading the Company's growth strategy by being the first project from the Patagonia group of assets to begin gold production.

Lomada is located in the La Paloma property block, approximately 120 kilometres to the north of the El Tranquilo property block. The Company successfully completed a heap leach trial at Lomada and the 2014 year will be the first year of full production with a target of 31,500 ounces production scheduled to be achieved. Exploration activities consisting of surface sampling, trenching, geophysics, drilling and mapping, are ongoing to delineate further resources.

2013 culminated with the commissioning of the main Heap Leach Pad 3 at the Lomada project effectively moving the project into full production phase. Nameplate production capacity of 1,750 ounces per month of gold production was reached during the fourth quarter of 2013. Total gold production to the end of February 2014 is equal to 16,426 ounces for a revenue of $22,190,000.

First production from the previously extracted gold from the trial commenced in March 2013 and has continued at a steady ramp up pace since then. Cost per ounce of production has steadily fallen throughout the year as efficiencies improved and the total plant throughput has increased along with the addition of mining fleet equipment and the commissioning of the main pad and larger capacity plant. The cash cost per ounce at Lomada for Q4 of 2013 was $678 per ounce with all in costs of $865 per ounce. The average realised gold price was $1,353 per ounce from May 2013 through February 2014.

During the year a full mining camp with office facilities has been constructed along with the infrastructure required to maintain and service the mining fleet and plant. The plant expansion has now been completed with the addition of 6 fully enclosed pressurised columns effectively providing a nameplate throughput capacity of 120m3/hr of pregnant solution; currently the plant is operating at an average hourly throughput of 75-80m3/hr.

In January 2014, the decision was taken to increase mine throughput and product to 3,000 ounces per month and target an annual production of 31,500 ounces for the 2014 calendar year. Additional equipment orders have been placed and scheduled to arrive in Argentina before the end of May 2014 at an estimated delivered cost of US$ 2.1 million representing the bulk of the capital cost which will be spent on the project as it stands with the current resource base.

Expansion of the main pad has been completed and final lining work is being carried on cells 2 and 4 by a local contractor; a total capacity of 1.5MT has now been lined and ready for loading. Mobile crushing facilities are now installed at the main pad area, enabling all crushing and re-handling to be completed from this location.

Near-mine exploration is scheduled to commence at Lomada and Cerro Vasco in the fourth quarter of 2014 with the primary objective of increasing the global resources for Lomada. High-grade underground potential exists nearby at Breccia Sofia along with near-surface regional targets within the mineralised corridor to the northwest and southeast of the existing mineralisation.

Cap-Oeste Project

The Cap-Oeste Project is Patagonia's flagship project. It is located within a structural corridor extending 6 kilometres from the La Pampa prospect in the northwest to the Tango prospect in the southeast. The Cap-Oeste deposit to date has a delineated strike extent of 1.1 kilometres.

Since acquiring the property from Barrick in 2007, PGSA has drilled 400 holes for a total of 92,359 metres in the period to February 2013. During that time, PGSA has filed four NI 43-101 resource estimates. The most recent, filed in December 2012, describes phase II, III and the initial portion of phase IV exploration activities consisting of geologic mapping, excavation of five trenches, gathering of 82 channel samples, 352 drill holes totaling 78,673 metres, a petrographic study, topographic survey, three-dimensional modelling and geophysical surveys.

The Cap-Oeste project has now entered into the final stage of development with the Company having decided to advance the project to production in two phases: the first phase being the construction of a 50,000 ounce per annum capacity oxide heap leach processing facility and the second phase which will entail the construction of a flotation and pressure oxidation facility capable of treating both the sulphide hosted mineralisation and the COSE ore.

During Q4 2013, Allard Engineering and Mineral Advisory Group in conjunction with Newfields Inc. were retained for the completion of an engineering study, testwork programme and CAPEX estimates for the Cap-Oeste oxide project. A series of agglomerated column tests were carried out on the Cap-Oeste ore to determine the leach kinetics and recoveries for gold and silver respectively. The ore was crushed to a minus 20mm passing size and agglomerated with a mixture of water, cement (5kg per tonne) and cyanide solution (3kg per tonne) and left to cure for three days in the column before leaching with 300ppm concentration NaCN solution. Recovery curves are shown below: 76.9% of the gold and approximately 36.33% of the silver were liberated into solution within 16 days. The ultimate extractable estimated total recovery for each metal is 83.6% for gold and 39.4% for silver.

Plant design and process flow sheets and a preliminary heap leach pad design and plant layout have been completed. The ore is to be agglomerated with the addition of cyanide and cement, and loaded onto the pad via a series of conveyors and a stacking system reducing compaction and increasing overall recovery from the heap. The plant will use a Merrill Crowe system for recovery of metals through precipitation from the pregnant solution and then direct smelting. The advantages over a carbon recovery circuit are the overall capital cost will be lower and the gold room will require a minimal expansion of smelting capacity to accommodate the additional production.

Capital requirements for the oxide project total US$33.7 million and are scheduled to be invested over a 2 year period from construction through to production with a sustaining capital portion of US$8.5 million which includes fleet repayments to be repaid within 4 years. These estimates are preliminary and will be confirmed once detailed engineering and design is completed although they are expected to remain within +/-15% of this figure.

The development of the Cap-Oeste sulphide mineralisation will continue with ongoing testwork and studies aimed at constructing a processing facility capable of treating both the Cap-Oeste sulphide ore and the COSE mineralisation essentially minimizing capital expenditure and optimizing resources within the project. AMEC is continuing with the overall feasibility study for the project with completion scheduled for late 2014.

COSE Project

In 2010, the Company filed the maiden NI 43-101 resource estimate for the COSE Project. At the same time a Preliminary Economic Assesment ("PEA"), or scoping study, was completed to establish viability for the construction, mining and processing of the deposit.

COSE is a fault breccia hosted quartz sulphide rich gold/silver system hosted within the intersection of the steeply dipping COSE (extension of Bonanza) fault and cross-cutting northeast and southwest trending structures. The mineralisation was discovered in early 2010 during exploration along the Bonanza fault towards the Tango prospect. The existing global resource estimate including inferred material contains approximately 37,000 tonnes @ 60.06 g/t gold and 1,933 g/t silver making it an extremely high-grade, low-tonnage deposit.

Wide low-grade or diffuse zones of silver low-grade gold mineralisation characterize the mineralisation occurring at surface and within the first 130 metres vertically down dip. Below 130 metres and continuing to a currently delineated depth of 260 metres, the width of the fault hosted breccia decreases and the grade of both gold and silver increase exponentially leading in turn to the overall resource grade being estimated in excess of 90 g/t gold equivalent. The mineralisation is still open at depth; one of the objectives of the decline development is to create a drill access gallery area to fully test the down-dip potential.

A drill programme totalling 2,475m was completed during Q1 2013, targeting a large geophysical anomaly which extends between Cap-Oeste and COSE along strike of the bonanza fault that hosts and controls the mineralisation at both deposits. Broad zones of low grade mineralisation were encountered with significant results that include 66.6m at 2.04 g/t gold and 36.18 g/t silver from drillhole CSE-091.

COSE mineralised intersections include:

Table 1: Results from COSE 2013 drilling

*Intervals reported in the above table are not true thicknesses and are estimated to represent between 80-85% of the actual true thickness of mineralisation

**AuEq(gold equivalent) ratio is 53.5:1 Ag:Au

Process testwork has continued through 2013 with the objective being to optimize the extraction of gold and silver from the COSE ore. Several different process routes have been investigated with the most likely process involving a combination of floatation and cyanide leaching of the floated concentrate product. Testwork will continue in 2014 as the project is developed in unison with the Cap-Oeste project. Preliminary testwork shows in excess of 97% gold and 98% of the continued silver will report to a concentrate and can then be leached. Optimization tests to account for the fine clay content within the ore body will need to be completed during the year to finalise the design criteria for the plant.

The mine will be a combination of open pit and underground with anticipated mine life of no more than 20 months from the date of commencement of the pit. As the plant will be shared with Cap-Oeste, capital will be minimized. A full updated mine plan and resource estimate will be completed by AMEC as part of the ongoing feasibility study.

El Tranquilo and Regional Exploration

The El Tranquilo block will form the main target area of the Company's exploration effort for 2014. As the Cap-Oeste-COSE project is planned to become a central processing area, a concerted effort will be made to explore the 80,000+ hectares of the El Tranquilo land package.

A series of 22 target areas have been identified over the last two years with mineralisation discovered at surface in trenches and rock outcrops on prospects such as Valle, Calafate, Felix and the more advanced projects such as Monte Leon and Marciana.

A drill and exploration budget of $4.5 million has been approved for the 2014 season with drilling scheduled to commence in Q2. The target material is primarily high-grade oxide near-surface low sulphidation mineralisation which can be added to the existing resource base and the planned oxide heap leach project at Cap-Oeste.

A full ground magnetic survey and geochemical survey is also programmed for the block along with continued mapping and an IP geophysical programme to be carried out over the main prospects. Approximately 70% of the entire block remains unexplored, with 1.5 million ounces of gold equivalent resources already delineated on the block. Patagonia believes huge potential exists to add to this resource base.

La Manchuria was advanced during the 2013 season with a drilling programme targeting down-dip extensions, mineralisation at La Manchuria East and additional broad zones of oxide material from surface in La Manchuria central zone. The mineralisation is classic low sulphidation style epithermal gold and silver mineralisation represented by thin, high grade quartz vein hosted material along with wide lower grade halos of potentially heap leachable material.

A nine hole, 1,259 metre HQ diameter diamond drill programme was completed at the Manchuria main zone and Manchuria East in May 2013. Results include:

Table 2: Initial results from La Manchuria 2013 exploration programme

*Intervals reported in the above table are not true thicknesses and are estimated to represent between 80-85% of the actual true thickness of mineralisation

** AuEq (gold equivalent) ratio is 60:1 Ag:Au

To date, the Company has completed 20,993 metres of diamond and reverse circulation drilling on this project. A resampling programme was completed on previously unsampled diamond core to ascertain the possibility of delineating a large low-grade heap leachable resource. Modelling is continuing and further exploration is planned to the immediate south of the project to test a large silver anomaly discovered with soil geochemical sampling.

La Manchuria South

Forming part of the Fomicruz joint venture package of properties, the La Manchuria South Blocks including the Haydee and Rene licences which are located approximately 15km to the south of La Manchuria project, have shown excellent potential with a series of mineralised occurrences mapped and sampled at surface.

Projects include Veta Speme, Cerro Turulo, Tres lagunas and Los Domos. Intersections of interest include:

Table 3: Significant intervals, Tres Lagunas and Veta Speme

Channel sampling from Cerro Turulo which is represented by an outcropping quartz vein structure running in a northwest-southeast orientation and associated with a large hydrothermal breccia and quartz blow has returned some excellent values including 1.1metres @ 14.46 g/t gold and 234 g/t silver in Channel 18 plus 1.00 metre @ 4.50 gold and 18.50 g/t silver in Channel 01.

Social and Economic Responsibility

Patagonia Gold maintains a strong awareness of its responsibilities towards the environment and existing social structures.

Careful attention is given to ensure that all exploration and development work is carried out strictly within the guidelines of the relevant mining and environmental acts. Patagonia attempts, where possible, to hire local personnel and use local contractors and suppliers.

Matthew Boyes

Chief Operations Officer

16 May 2014

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2013

The notes form part of these financial statements.

Consolidated Statement of Financial Position

at 31 December 2013

Company Registered number 3994744

These financial statements were approved by the Board of Directors on 16 May 2014and were signed on its behalf by:

Gonzalo Tanoira

Director

The notes form part of these financial statements.

Consolidated Statement of Changes in Equity for

the year ended 31 December 2013

The notes form part of these financial statements.

Consolidated Statement of Cash Flows

for the year ended 31 December 2013

The notes form part of these financial statements.

Notes to the Financial Statements for the year ended 31 December 2013

The financial statements represent the parent company, Patagonia Gold Plc (the "Company"), and its subsidiaries, collectively known as the "Group".

1. Basis of preparation

Patagonia Gold Plc (the "Company") is a company registered in England and Wales. The Company's ordinary shares are traded on the AIM market of the London Stock Exchange.

 The consolidated financial statements of the Group and the financial statements of the Company have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union and with the Companies Act 2006 applicable to companies reporting under IFRS. The Group's financial statements have also been prepared in accordance with IFRS as issued by the International Accounting Standards Board ("IASB"). The financial statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets, share-based payment charge and fair value of mining rights acquired.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. Management is also required to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions or estimates are significant to the financial statements are disclosed in Note 3. The principal accounting policies applied in the preparation of the financial statements are set out in Note 3.

The financial information is presented in United States dollars ("$"). The functional currency of the Company is British pounds sterling ("GBP"). Where indicated, financial information incorporated within these financial statements is rounded to the nearest thousand. Operations denominated in other currencies are included in this financial information in accordance with the accounting policies set out in Note 3. The Group presents its financial statements in $ as it is the currency most relevant to future activities.

A separate statement of comprehensive income for the Company has not been presented as permitted by Section 408 of the Companies Act 2006. The Company made a loss of $1.8 million in 2013 (2012: $3.0 million) which includes an impairment charge of $1.2 million (2012: $ Nil) following the closure of the Patagonia Gold Canada Inc. office, this charge being eliminated on consolidation.

Audit Information

The financial information set out in this preliminary announcement does not constitute statutory accounts as defined in Section 435 of the Companies Act 2006. The consolidated statement of financial position at 31 December 2013 and the consolidated statement of comprehensive income, consolidated statement of changes in equity, and consolidated statement of cash flows and associated notes for the year then ended have been extracted from the Group's statutory financial statements for the year ended 31 December 2013 (which have not yet been filed with Companies House) upon which the auditor's opinion is unqualified and does not include any statement under Section 498 (2) or (3) of the Companies Act 2006. The audited financial statements for the year ended 31 December 2012 have been filed with Companies House. The auditor's opinion was unqualified, and did not include any statement under Section 498 (2) or (3) of the Companies Act 2006.

2. Going concern

These consolidated financial statements are prepared on a going concern basis, which the Directors believe to be appropriate.

Patagonia Gold is an advanced gold and silver exploration and development company which commenced commercial production of gold in July 2013 upon the successful commissioning of its new gold processing facility at the Lomada de Leiva Project. Gold production continued and reached nameplate 1,750 ounces per month in November 2013 and has continued at or above that level to date. In January 2014 the Group decided to expand production from Lomada to 3,000 ounces per month to be achieved by late Q2 2014. Minimal capital is required to achieve this expansion.

Regular monthly cash flow from the Lomada Project main heap leach, which commenced commercial production in the third quarter of 2013, is targeted to partly finance the Company's exploration programme for the remainder of 2014, the expansion of the Lomada heap leach project and continuing studies on the Cap Oeste / COSE project. This planned expansion will require additional capital financing.

The Company will be investigating opportunities to raise this additional capital, however, the continued volatility in equity and debt markets coupled with the current gold price indicate the existence of a material uncertainty that may cast significant doubt on the Group and Company's ability to continue as a going concern. The Group and Company are evaluating additional strategies and corresponding financing requirements for 2014 and beyond and are confident in their ability to secure additional funding at a competitive rate to continue to meet commitments as they fall due.

The Group is confident in its ability to undertake the current planned programme of activity over the next 12 months from the date of this report. Accordingly, the financial statements do not include any adjustments, which would be necessary if the Company and Group ceased to be a going concern.

3. Significant accounting policies

The following accounting policies have been applied consistently in respect of items that are considered material in relation to the Group and Company financial statements.

Basis of consolidation

The Group financial statements consolidate those of the Company and all of its controlled subsidiaries. Controlled subsidiaries are entities over which the Group has the power to control the financial and operating policies so as to obtain benefits from its activities. The Group obtains and exercises control through voting rights.

Unrealised gains on transactions between the Group and its subsidiaries are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group.

Non-controlling interests in the Company's less than wholly owned subsidiaries are classified as a separate component of equity. The consolidated financial statements of the Group include 100% of the operating losses and net assets of subsidiaries in which there is a non-controlling interest if the operating losses of the subsidiary are fully financed by the.

Revenue recognition

In accordance with IAS 18, revenue is recognised when all the significant risks and rewards of ownership have been transferred, Management consider this to be the point at which the gold is sold onto the market.

The revenue received from the sale of gold and silver recovered from the Lomada trial heap leach project to 30 June 2013 are offset against the capitalised costs of Lomada Project development in compliance with IAS 16. Revenue from commercial production has therefore been recognised from 1 July 2013.

Foreign currency

The Parent company's functional currency is GBP. The Argentine subsidiaries functional currency is US$ ("$"). Both functional currencies represent the main currency of both income and on-going capital expenditure within those individual entities.Transactions in foreign currencies are initially recorded in the respective entities functional currency using the exchange rates prevailing at the dates of the transactions (spot exchange rate). Foreign exchange gains and losses resulting from the settlement of such transactions and from the re-measurement of monetary items at year-end exchange rates are recognised in the consolidated statement of comprehensive income. Non-monetary items measured at historical cost are translated using the exchange rates at the date of the transaction (not retranslated). Non-monetary items measured at fair value are translated using the exchange rates at the date when fair value was determined. On consolidation, each Group entity translates its financial statements into $ as outlined below. The functional currencies of the entities in the Group have remained unchanged during the reporting period.

The financial statements of the Group and the Company are presented in $. The Directors believe that the $ more accurately reflects the gold and silver markets and is the main currency of both income and on-going capital expenditure of the Group. For presentation purposes assets, liabilities and equity, excluding retained earnings, are translated to $ at exchange rates at the reporting date. Income and expenses are translated to $ at the average exchange rate for the period in which the transaction arose. The GBP/$ closing exchange rate as at 31 December 2013 was 1.6488 (2012: 1.6153) whilst the average rate for the year ended 31 December 2013 was 1.5643 (2012: 1.5847). For the year ended 31 December 2013, a translation loss of $7.9million is recognised resulting from the translation to $ of the Company's foreign operations (2012: translation loss $5.1 million).

Exchange differences arising are recognised in other comprehensive income as a separate component of equity titled "Currency translation reserve". On disposal of a foreign operation the cumulative exchange differences recognised in other comprehensive income are reclassified to profit or loss and recognised as part of the gain or loss on disposal.

Share-based payments

Share options granted to employees and directors are categorised as equity-settled share-based payments. Equity-settled share-based payments are measured at the fair value of goods or services received when the fair value can be reliably estimated. If the fair value of goods and services received cannot be reliably measured, then the fair value of the instrument issued is measured using an appropriate option pricing model at the grant date. For share options granted to employees and directors, the fair value of the options is measured using the Black-Scholes option pricing model and excludes the impact of non-market vesting conditions (for example, profitability and sales growth).

All equity-settled share-based payments are ultimately recognised as an expense in the statement of comprehensive income with a corresponding credit to "share-based payment reserve". If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period. No adjustment is made to any expense recognised in prior periods if share options ultimately exercised are different to that estimated on vesting.

As share options are exercised, proceeds received net of attributable transaction costs, increase share capital, and where appropriate share premium. The fair value of the exercised options carried in share-based payment reserve is transferred to retained earnings.

Equity-settled share-based payment transactions with parties other than employees are measured at the fair value of the goods and services received, except where that fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders the service.

Investments in subsidiaries

The Company's investments in subsidiaries are stated at cost net of any provision for impairment. Capital contributions are recognised at cost within investments in subsidiary undertakings.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.

Inventory

Inventory comprises gold held on carbon and is valued by reference to the costs of extraction, which include mining and processing activities. Inventory and work in process is valued at the lower of the costs of extraction or net realisable value. Inventories sold are measured by reference to the weighted average cost.

Exploration costs

Exploration costs are expensed until the determination of the technical feasibility and the commercial viability of the associated project. Exploration costs include costs directly related to exploration and evaluation activities in the area of interest. The technical feasibility and commercial viability of extracting a mineral resource is considered to be determinable when economically recoverable resources are determined to exist, the rights of tenure are current and it is considered probable that the costs will be recouped through successful development and exploitation of the area, or alternatively by sale of the property. This determination is normally evidenced by the completion of a technical feasibility study.

Mining rights

Mining rights are rights to explore and mine specified areas of land acquired from the landowner. Mining rights acquired for stated terms in excess of 10 years are capitalised as intangible assets and are measured initially at cost and amortised on a straight-line basis over the term of the rights. Amortisation is charged to administrative expenses in the Statement of Comprehensive Income.

Mineral properties

Once the technical feasibility study is completed, subsequent exploration and development expenses are capitalised as mineral properties. Engineering expenditures incurred to design the size and scope of the project, environmental assessments, permitting, and surface rights acquisitions are capitalised in mineral properties. Upon reaching the development stage, these capitalised costs will be amortised using the unit-of-production method over the estimated period of economically recoverable resources.

Assets under construction

Assets under construction at projects and operating mines are capitalised in the "assets in the course of construction" account.

From 1 March 2011, exploration costs on the COSE Project have been capitalised as mineral properties - assets in the course of construction, prior to the receipt of full permitting for extraction of the mineralisation.

Property, plant and equipment

Property, plant and equipment are stated at cost or valuation, net of depreciation and any provision for impairment.

Depreciation is calculated to write off the cost of property, plant and equipment to their estimated residual value over their estimated useful lives at the following rates:

Straight-line basis

Office equipment 5 - 10 years

Vehicles 5 years

Machinery and equipment 3 years

Buildings 20 years

Unit of production

Plant Depreciation of the plant commenced October 2011 and is depreciated on a unit-of-production method over the estimated period of economically recoverable resources.

An asset's residual value, useful life and depreciation method are reviewed and adjusted, if appropriate, on an annual basis.

All costs incurred and revenue received in relation to the Lomada Project from 1 September 2010 to 30 June 2013 are related to the testing and development phase of the project, prior to commencement of commercial operations. These costs and revenues are capitalised to mineral properties - mining assets. Commercial production was deemed to commence on 1 July 2013 when the trial phase had ended, construction of the main heap leach operation was completed and recovery rates had reached the levels anticipated for commercial exploitation of the project. Upon commencement of commercial production, all revenue and operating expenses in respect of mining and processing operations at the Lomada Project have been recognised in the income statement.

Improvements and advances

Improvements and advances at the year-end relate to the development and modification of software and plant, including advance payments.

The cost of property, plant and equipment comprises its purchase price and any costs directly attributable to bringing it into working condition for its intended use, at which point it is transferred to property, plant and equipment and depreciation commences. Improvements and advances are not depreciated.

Impairment of assets

The Company reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. These reviews are made annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level.

An impairment loss is recognised for the amount by which the asset's or cash-generating unit's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value, reflecting market conditions less costs of disposal, and value in use based on an internal discounted cash flow evaluation.

An impairment loss recognised in prior periods to an asset or cash-generating unit is reversed if there has been a change in the estimates used to determine the respective recoverable amount since the last impairment loss was recognised. The reversal of previously recognised impairment losses is limited to the original carrying value of the asset including any amortisation that would have accrued.

During the year it was decided to close the Toronto offices of Patagonia Gold Canada Inc. (a wholly owned subsidiary of Patagonia Gold Plc.) and an appropriate impairment charge has been recognised in the accounts of the Company.

Income taxes

Income tax on the profit or loss for the periods presented comprises current and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to items recognised in other comprehensive income or directly in equity, in which case it is recognised in other comprehensive income or equity.

Current tax expense is the expected tax payable on the taxable income for the year, using rates enacted or substantively enacted at period end, adjusted for amendments to tax payable with regards to previous years.

Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill, or on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Deferred tax on temporary differences associated with shares in subsidiaries and joint ventures is not provided if reversal of these temporary differences can be controlled by the Group and it is probable that reversal will not occur in the foreseeable future. In addition, tax losses available to be carried forward as well as other income tax credits to the Group are assessed for recognition as deferred tax assets.

Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date.

Financial assets

Financial assets are recognised when the Group becomes a party to the contractual provisions of the instrument. Financial assets are derecognised when the rights to receive cash flows from the assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership.

Financial assets are assigned to the different categories on initial recognition, depending on the characteristics of the instrument and its purpose. A financial instrument's category is relevant for the way it is measured and whether resulting income and expenses are recognised in the statement of income or charged directly against other comprehensive income.

At initial recognition the Group classifies its financial instruments into the following categories:

• Loans and receivables

• Available-for-sale financial assets

• Assets held for trading

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. On initial recognition, loans and receivables are stated at their fair value, including transaction costs, they are subsequently measured at amortised cost using the effective interest method, less provision for impairment. Any change in their value is recognised in profit or loss. Individual receivables are considered for impairment when they are past due at the balance sheet date or when objective evidence is received that a specific counterparty will default. The Group's trade and other receivables fall into this category of financial instruments.

Available-for-sale financial assets include non-derivative financial assets that are either designated as such or do not qualify for inclusion in any of the other categories of financial assets. All financial assets within this category are initially measured at fair value, including transaction costs, with subsequent changes in value recognised in other comprehensive income. Gains and losses arising from investments classified as available-for-sale are recognised in profit or loss when they are sold or when the investment is impaired.

An assessment of whether a financial asset is impaired is made at each reporting date. Financial assets that are substantially past due are also considered for impairment. All income and expense relating to financial assets are recognised in the income statement line item "finance costs" or "finance income", respectively.

Financial liabilities

Financial liabilities are obligations to pay cash or other financial assets and are recognised when the Group becomes a party to the contractual provisions of the instrument. All financial liabilities are recorded initially at fair value, net of direct issue costs. Financial liabilities are derecognised when the obligation specified in the contract is discharged, cancelled or expires.

Financial liabilities are recorded, subsequent to initial recognition, at amortised cost using the effective interest method, with interest-related charges recognised as an expense in finance cost in the statement of comprehensive income. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are charged to the statement of comprehensive income on an accruals basis using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.

Restoration, rehabilitation and environmental costs

An obligation to incur restoration, rehabilitation and environmental costs arises when environmental disturbance is caused by the development or on-going production of a mining property. Such costs arising from the decommissioning of plant and other site preparation work, discounted to their net present values, are provided for in full as soon as the obligation to incur such costs arises and can be quantified. On recognition of a full provision, an addition is made to property, plant and equipment of the same amount; this addition is then charged against profits on a unit of production basis over the life of the mine. Closure provisions are updated annually for changes in cost estimates as well as for changes to life of mine reserves, with the resulting adjustments made to both the provision balance and the net book value of the associated non-current asset.

Equity

Equity comprises the following:

• "Share capital" represents the nominal value of the Company's ordinary shares.

• "Share premium" represents the excess over nominal value of the fair value of consideration received for ordinary shares, net of expenses of the share issue.

• "Currency translation reserve" represents the differences arising from translation of the financial statements of the Group's foreign entities and the Company's financial statements to the presentational currency of $.

• The Company's "Currency translation reserve" represents the difference arising from translation of the Company's financial statements to the presentational currency of $.

• "Share-based payment reserve" represents equity-settled share-based employee remuneration until such share options are exercised.

• "Accumulated losses" includes all current and prior period profits and losses.

• "Non-controlling interest" is the equity in a subsidiary not attributable, directly or indirectly, to the parent company.

Dividend distributions payable to equity shareholders are included in "other short term financial liabilities" when the dividends are approved in the General Meeting prior to the balance sheet date.

Loss per share

Loss per share is calculated based on the weighted average number of ordinary shares issued and outstanding. Diluted per share amounts are calculated using the treasury stock method whereby proceeds deemed to be received on the exercise of options in the per share calculation are assumed to be used to acquire ordinary shares. Whilst the Group is in a loss position, the effect of potential issuances of shares under options would be anti-dilutive, and has not been considered.

Segmental reporting

A segment is a distinguishable component of the Group that is engaged either in providing products or services (operating segment) and takes into account the economic environment in which that segment operates. IFRS 8 requires the amount of each operating segment item to be disclosed based on internal management information. The Group's projects, the majority of which are at the exploration or development stage in South America, are not reported as separate segments. As and when each individual project progresses to construction, trial and then to production stage, it is reported as a separate segment for internal management information. Therefore, for the purposes of segmental reporting, as at 31 December 2013 the Lomada Project and the COSE Project are treated as separate operating reporting segments from the Group's other projects.

Leases

In accordance with IAS 17, the economic ownership of a leased asset is transferred to the lessee if the lessee bears substantially all the risks and rewards related to the ownership of the leased asset. The related asset is recognised at the time of inception of the lease at the fair value of the leased asset or, if lower, the present value of the minimum lease payments plus incidental payments, if any, to be borne by the lessee. A corresponding amount is recognised as a finance leasing liability. Leases of land and buildings are split into land and buildings elements according to the relative fair values of the leasehold interests at the date of entering into the lease agreement.

The interest element of leasing payments represents a constant proportion of the capital balance outstanding and is charged to the statement of comprehensive income over the period of the lease.

All other leases are regarded as operating leases and the payments made under them are charged to the statement of comprehensive income on a straight-line basis over the lease term. Lease incentives are spread over the term of the lease.

Critical accounting estimates and judgements

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates and assumptions will, by definition, seldom equal the related actual results. The Group has evaluated the estimates and assumptions that have been made in relation to the carrying amounts of assets and liabilities in these financial statements. It has concluded that there is no significant risk of these estimates and assumptions causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

Information about the estimates and judgements made by the Group to reach it's conclusions are contained in the accounting policies and/or the notes to the financial statements, and the key areas are summarised below:

Key Estimates

• Mining rights - See Note 12. The mining rights acquired by PGSA are for a forty-year period from the date of the agreement and are amortised on a straight-line basis over forty years commencing in 2012. The Directors consider that this basis remains appropriate.

• Reviewing the recoverability of VAT balances due to the Group. The Directors have considered post year-end approvals set by the Mining Secretary in Argentina and consider the Recoverable VAT as at 31 December 2013 to be recoverable in full and no provision is considered necessary. The VAT balances receivable are normally due to the Group in less than one year, but these amounts have been classified as a non-current asset as management's on-going dialogue with the government indicate approval by the Mining Secretary and receipt of the funds may require a timeframe of more than one year. See Note 16.

• The Company calculates the cost of share-based payments granted to employees and Directors using the Black-Scholes Model. Inputs into the model in respect of the expected option life and the volatility are subject to management estimates and any changes to these estimates may have a significant effect on the cost. The assumptions used in calculating the cost of share-based payments for the year ended 31 December 2013 are explained in Note 27 of the financial statements. Where there is a modification to the exercise price of existing options which increases the fair value of equity instruments granted by reducing the exercise price, the incremental fair value granted is recorded as an expense in the statement of comprehensive income with a corresponding entry to the share based payment reserve. The incremental fair value granted is the difference between the fair value of the modified equity instrument and that of the original equity instrument, both estimated as at the date of the modification. As the modification occured after vesting date, the incremental fair value granted is recognised immediately.

Critical Judgements

• Classification of mineral properties - See Note 13. Exploration expenditures relating to a particular project will be written off until such time as the Board has determined that the project is viable based upon a positive feasibility study and a decision to move into production. As from 1 September 2010all development costs incurred in respect of the project have been capitalised as mineral properties - mining assets. The revenue received from the sale of gold and silver recovered from the Lomada trial heap leach project to 30 June 2013 was offset against the capitalised costs of Lomada Project development in compliance with IAS 16. The Lomada Project main heap leach commenced commercial production in the third quarter of 2013.

From 1 March 2011, the Board determined that exploration costs on the COSE Project be capitalised from that date forward as mineral properties - assets in the course of construction, prior to the receipt of full permitting for mining the mineral property.

• Provisions for environmental reclamation require judgment in determination of future obligations and are based on assessments of technical, legal and economic factors. Management is required to make estimates of future costs the Group will likely incur in order to complete the reclamation and remediation work required to comply with existing laws and regulations. The ultimate cost is uncertain and estimates vary in response to many factors including changes to the relevant legal requirements, the emergence of new restoration techniques and changes to the life of the mine. See Note 21.

• In March 2011, the Company agreed to a 2.5% Net Smelter Return ("NSR") royalty on all future production of mineral products from the properties acquired from subsidiaries of Barrick Gold Corporation ("Barrick"). A liability is recognised as sales are made in accordance with IAS37. See Note 4.

• A cash payment of $1.5 million will become payable to Barrick upon the delineation of 200,000 ounces or greater of gold or gold equivalent NI 43-101 indicated resource on the La Paloma property block. This amount has not been recognised, as there is no certainty of achieving the required indicated resource threshold. See Note 4.

• Fair value of the mining rights acquired from Fomicruz, an established mining company, wholly-owned by the government of Santa Cruz Province - See Note 12. Fomicruz contributed to PGSA certain mining rights in exchange for a 10% equity interest in PGSA. Pursuant to IFRS 2 Share-based Payment, the mining rights acquired are measured, by reference to the estimated fair value of the 10% interest in PGSA acquired by Fomicruz on 14 October 2011, at $4.0 million. In determining this fair value estimate, management considered many factors including the net assets of PGSA and the illiquidity of the 10% interest. This amount is recorded as an increase in the equity of PGSA and as a mining right asset. In the consolidated financial statements, the increase in equity in PGSA has been recorded as non-controlling interest.

• Deferred tax asset - See Note 10. The deferred tax asset recognised in the year related to the tax losses accumulated from the Lomada Project, Management consider that two thirds of this amount will be utilised against taxable income from the Lomada Project in 2014 and the remaining one third will be utilised against taxable income from the Lomada Project in 2015.

Changes in accounting policies and disclosures

Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"), which comprise standards and interpretations approved by the International Accounting Standards Board ("IASB"), the International Financial Reporting Interpretations Committee ("IFRIC"), the International Accounting Standards and Standards Interpretations Committee Interpretations approved by the International Accounting Standards Committee ("IASC") that remain in effect as at 31 December 2013 and to the extent that they have been adopted by the European Union.

Applicable amendments to existing standards and interpretations effective in the yearThe Company has adopted the following amended IFRSs during the year:

• IFRS 7 (amendments as part of improvements to IFRSs issued in 2011), 'Financial Instruments: Disclosures', effective for annual periods beginning on or after 1 January 2013. The amendments to IFRS 7 clarify the required level of disclosures about offsetting financial assets and financial liabilities;

• IFRS 9 (amendments as part of improvements to IFRSs issued in 2010), 'Financial Instruments: Recognition and Measurement', effective for annual periods beginning on or after 1 January 2013. The amendments introduce new requirements for the classification and measurement of financial assets and financial liabilities and for derecognition;

• IFRS 12 (Standards issued in 2011), 'Disclosure of interests in other entities', effective for annual periods beginning on or after 1 January 2013. The objective of IFRS 12 is to require disclosure of information that enables users of financial statements to evaluate interests in other entities;

• IFRS 13 (Standard effective 1 January 2013), 'Fair value measurement', Fair value measurement does not affect which items are required to be fair-valued, but clarifies the definition of fair value and provides related guidance and enhanced disclosures about fair value measurements. The Group's management does not consider that this has a significant impact on the Group.

• IAS 1 (Amendments to IAS1), 'Presentation of Financial Statements, The IAS 1 amendments are applicable for annual periods beginning on or after 1 July 2012 and require an entity to group items presented in other comprehensive income into those that, in accordance with other IFRSs: (a) will not be reclassified subsequently to profit or loss and (b) will be reclassified subsequently to profit or loss when specific conditions are

• IAS 32 (amendments as part of improvements to IFRSs issued in 2012), 'Financial Instruments: Presentation', effective for annual periods beginning on or after 1 January 2013. The amendments relate to the tax effect of equity distributions;

Applicable new standards and amendments to existing standards not yet effective

The following new standards and amendments to existing standards that are relevant to the Company, have been issued but are not effective for the year ending 31 December 2013 and have not been early adopted:

• IFRS 2 (Annual Improvements for 2010-2012 Cycle), 'Share-based Payment', effective for annual periods beginning on or after 1 July 2014. The amendments to IFRS 2 clarify the definition of 'vesting condition' and 'market condition' and add definitions for 'performance condition' and 'service condition';

• IFRS 8 (Annual Improvements for 2010-2012 Cycle), 'Operating Segments', effective for annual periods beginning on or after 1 July 2014. The amendments require an entity to disclose the judgments made by management in applying the aggregation criteria to operating segments and clarifies that an entity shall only provide reconciliations of the total of the reportable segments' assets to the entity's assets if the segments' assets are reported regularly.;

• IFRS 9, 'Financial Instruments - Classification and Measurement', effective for annual periods beginning on or after 1 January 2015. The standard reflects the first phase of the IASB's three stage project to replace IAS 39. The first phase deals with the classification and measurement of financial assets and financial liabilities. The Company will also consider the impact of the remaining phases of IFRS 9 when completed by the IASB;

• IFRS 10, 'Consolidated Financial Statements', effective for annual periods beginning on or after 1 January 2014. This standard replaces the consolidation sections of IAS 27 and SIC 12. The standard sets out a new definition of control, which exists only when an entity is exposed to, or has rights to, variable returns from its involvement with the entity, and has the ability to effect those returns through power over the investee;

• IFRS 12, 'Disclosure of Interests in Other Entities', effective for annual periods beginning on or after 1 January 2014. The standard sets out disclosure requirements for investments in subsidiaries, associates, joint ventures and unconsolidated structured entities. The disclosures are aimed to provide information about the significance and exposure to risks of such interests. The most significant impact is in the disclosure requirement for unconsolidated structured entities or off-balance sheet vehicles;

• IFRS 13 (Annual Improvements for 2010-2012 Cycle), 'Fair Value Measurement', effective for annual periods beginning on or after 1 July 2014. The amendment clarifies that issuing IFRS 13 and amending IFRS 9 and IAS 39 did not remove the ability to measure short-term receivables and payables with no stated interest rate at their invoice amounts without discounting if the effect of not discounting is immaterial;

• IAS 16 (Annual Improvements for 2010-2012 Cycle), 'Property, Plant and Equipment', effective for annual periods beginning on or after 1 July 2014. The amendment clarifies that when an item of PPE is revalued the gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount;

• IAS 24 (Annual Improvements for 2010-2012 Cycle), 'Related Party Disclosures', effective for annual periods beginning on or after 1 July 2014. The amendment clarifies that an entity providing key management personnel services to the reporting entity or to the parent of the reporting entity is a related party of the reporting entity;

• IAS 27, 'Separate Financial Statements', effective for annual periods beginning on or after 1 January 2014. The standard is a consequential amendment as a result of IFRS 10. The amended standard now only deals with separate financial statements;

• IAS 32, 'Financial Instruments: Presentation', effective for annual periods beginning on or after 1 January 2014. The amendment offers clarification of certain aspects concerning the requirements for offsetting financial assets and financial liabilities;

• IAS 38 (Annual Improvements for 2010-2012 Cycle), 'Intangible Assets', effective for annual periods beginning on or after 1 July 2014. The amendment clarifies that when an intangible asset is revalued the gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount.

The effect of the new standards and interpretations have been considered by management and are not expected to result in a material adjustment to the consolidated financial statements.

4. Acquisition of Barrick's property portfolio in Santa Cruz, Argentina

The Group announced on 21 February 2007 that it had acquired the rights, title and interest in 70 expedientes (mineral titles) previously held by Barrick Exploraciones Argentina S.A. and Minera Rodeo S.A. (collectively the "Barrick Sellers") being subsidiaries of Barrick Gold Corp. ("Barrick"). The expenditure commitments totalling $10.0 million, which were given to Barrick, have been fully satisfied.

Under the original agreement, PGSA had granted Barrick an option to buy back up to a 70% interest in the properties sold to PGSA under the acquisition agreement upon the delineation of the greater of 2.0 million ounces of gold or gold equivalent NI 43-101 indicated resource on that property group going forward ("Back in Right").

On 23 March 2011 the Back in Right from the original property acquisition agreement was eliminated in exchange for a 2.5% NSR in favour of the Barrick Sellers on all future production of mineral products on the properties sold to PGSA under the acquisition agreement. Revenues have been recognised from 1 July 2013 when the Lomada project was deemed to have commenced commercial production. The proceeds of sales of gold and silver from the Lomada Project trial heap leach from December 2012 to 30 June 2013 have been deducted from mineral properties - mining assets (see Note 13) and an appropriate accrual was made for the NSR in compliance with IAS37, where NSR royalty payments are recognised and accrued once sales are made and the liability to settle the NSR is unconditional.

A payment of $1.5 million will be payable to Barrick upon the delineation of 200,000 ounces or greater of gold or gold equivalent NI 43-101 indicated resource on the La Paloma property group. The amount has not been recognised, as there is no certainty of achieving the required indicated resource threshold.

5. Segmental analysis

Management do not currently regard individual projects as separable segments for internal reporting purposes with the exception of the Lomada Project, which commenced commercial production in the third quarter of 2013 and the COSE Project where construction work has commenced. All revenue in the year is derived from sales of gold and silver.

The Group's net loss and its geographic allocation of total assets and total liabilities may be summarised as follows:

The Group's geographic allocation of exploration costs is as follows:

1Segment represents other exploration projects including Cap Oeste.

From 1 September 2010 onwards, expenditures incurred at the Lomada Project are capitalised and disclosed as mineral properties - mining assets (See Note 13). From 1 April 2011 certain costs are included in inventory.

From 1 March 2011 onwards, expenditures incurred at the COSE Project are capitalised and disclosed as mineral properties - assets in the course of construction (See Note 13).

Exploration costs incurred at all other projects are written off to the statement of comprehensive income in the year they were incurred.

6. Finance income

During the year, the Company purchased Argentine bonds (BODEN 2015) for $8.6 million (2012: $10.5 million). During the twelve months ended 31 December 2013, the Company recorded investment income on redemption of the bonds of $5.1 million (twelve months ended 31 December 2012: $4.9 million). The debt securities were treated as available-for-sale financial assets as they are quoted in active markets. Fair values have been determined by reference to their quoted bond prices at the reporting date. No bonds were held as at 31 December 2013.

7. Staff numbers and costs

8. Other administrative costs

9. Remuneration of Directors and key management personnel

Parent Company Directors' emoluments:

In 2013, the highest paid Director was due $266 thousand (2012: $269 thousand). This amount does not include any share-based payments charge.

None of the directors exercised share options during the year ended 31 December 2013.

On 26 February 2014, following consultation with the Company's advisors, 3,074,331 ordinary shares in the Company were issued in lieu of $548 thousand (£350 thousand), representing the outstanding fees owed to Directors for their services during 2013, under each Director's terms of appointment. The shares were deemed to be allotted for cash at a market price of 11.38 pence, being the volume weighted average share price for the Company for the 30 day period prior to the date of the announcement.

Key management personnel emoluments:

10. Income tax

The current income tax expense for the year on the ordinary business of the Group was $Nil (2012: $Nil).

Factors affecting the income tax expense for the year

The following table reconciles the reported income tax expense to the estimated income tax recovery that would have been obtained by applying the Group's 2013 and 2012 UK Statutory tax rate to the Group's loss before income tax. Items shown in other comprehensive income are not expected to have a material impact on the year's income tax expense.

Factors that may affect future tax charges

The Group contains entities with tax losses and deductible temporary differences for which no deferred tax asset is recognised.

The Company has unrecognised losses and other temporary differences at 31 December 2013 of approximately $13.6 million - £8.3 million (2012: $15.1 million - £9.4 million) that may be utilised against future taxable income. UK losses and other temporary differences may be carried forward indefinitely to reduce taxable income in the future.

Subsidiary companies in Argentina have unrecognised tax losses at 31 December 2013 of approximately $3.4 million - AR$ 22.1 million (2012: $617 thousand - AR$ 3.0 million) which may be used against future taxable income. These losses expire as follows:

Year AR$ USD

(in Thousands)

2014 302 47

2015 410 63

2016 890 137

2017 1,266 195

2018 19,198 2,956

Subsidiary companies in Argentina have cumulative unused exploration costs related to different mining projects as at 31 December 2013 of approximately $49.1 million - AR$ 318.6 million (2012: $56.1 million - AR$ 275.1 million). Under the Argentine law "Ley de Inversiones Mineras No. 24196", which combines the requirements of the federal tax code and the mining code, exploration costs are available to be deducted from taxable income two times in the following order:

1) as a depreciation on the basis of the units of the project production; and

2) as a deduction in full within the first five years as of the start of the related project production.

A deferred tax asset of $3.6million (2012: $0.6 million) related to the tax losses accumulated from the Lomada Project has been recognised as at December 31, 2013. Of this amount $2.4 million is expected to be utilised against taxable income from the Lomada Project in 2014 and the remaining $1.2 million to be utilised against taxable income from the Lomada Project in 2015. Following IAS1.56 the entire deferred tax asset is shown as non-current.

The development of fiscal legislation in Argentina may lead to inherent uncertainties. Legislation is both complex and in certain situations, fiscal policies may be conflicted within the Courts. Management continually monitor fiscal developments to ensure that the Group is responsive to changes in legislation, once these changes become clear.

The standard UK corporation tax rate reduced from 24% in the year to 31 March 2013 to 23% in the year to 31 March 2014. Following announcements from the UK Chancellor of the Exchequer, corporation tax rates are expected to reduce to 21% and 20% in years ending 31 March 2015 and 31 March 2016 respectively.

11. Loss per share

The calculation of basic and diluted earnings per share is based on the following data:

There is no difference between the diluted loss per share and the basic loss per share presented. Due to the loss incurred in the year the effect of the share options in issue is anti-dilutive.

At 31 December 2013, there were 84,070,000 (31 December 2012: 76,445,000) share options and 24,705,000 warrants (31 December 2012: 24,705,000) in issue, which would have a potentially dilutive effect on the basic profit per share in the future. Share issues after the balance sheet date, as detailed in Note 31, are not considered significant.

12. Mining rights

On 14 October 2011, Patagonia Gold, PGSA and Fomicruz entered into a definitive strategic partnership agreement in the form of a shareholders' agreement ("Fomicruz Agreement") to govern the affairs of PGSA and the relationship between the Company, PGSA and Fomicruz. Pursuant to the Fomicruz Agreement, Fomicruz contributed to PGSA the rights to explore and mine approximately 100,000 hectares of Fomicruz's mining properties in Santa Cruz Province in exchange for a 10% equity interest in PGSA. The Fomicruz Agreement establishes the terms and conditions of the strategic partnership for the future development of certain PGSA mining properties in the Province. The Company will fund 100% of all exploration expenditures on the PGSA properties to the pre-feasibility stage, with no dilution to Fomicruz. After feasibility stage is reached, Fomicruz is obliged to pay its 10% share of the funding incurred thereafter on the PGSA properties, plus annual interest at LIBOR +1% to the Company. Such debt and interest payments will be guaranteed by an assignment by Fomicruz of 50% of the future dividends otherwise payable to Fomicruz on its shares. Over a five year period, the Company through PGSA is required to invest $5.0 million in exploration expenditures on the properties contributed by Fomicruz, whose rights to explore and mine were contributed to PGSA as part of the Fomicruz Agreement. The Company will manage the exploration and potential future development of the PGSA properties.

Fomicruz contributed to PGSA certain mining rights in exchange for a 10% equity interest in PGSA. Pursuant to IFRS 2 Share-based Payment, the mining rights acquired have been measured by reference to the estimated fair value of the equity interest given to Fomicruz. Management has estimated the fair value of the 10% interest in PGSA acquired by Fomicruz, on or about 14 October 2011 at $4.0 million. In determining this fair value estimate, management considered many factors including the net assets of PGSA and the illiquidity of the 10% interest. This amount has been recorded as an increase in the equity of PGSA and as a mining right asset. In the consolidated financial statements, the increase in equity in PGSA has been recorded as non-controlling interest. The initial share of net assets of PGSA ascribed to the non-controlling interest amounted to $4.0 million.

Management do not consider there to be any indications of impairment and no review of the carrying value has been undertaken.

The mining rights acquired by PGSA are for a forty-year period from the date of the agreement. As indicated above, these mining rights have been recorded as an intangible asset and are amortised on a straight-line basis over forty years commencing in 2012.

13. Mineral properties

Mining assets

The Lomada Project has completed the trial heap leach phase and entered full commercial production in the third quarter of 2013. From 1 September 2010 all development costs incurred in respect of the project have been capitalised as mineral properties - mining assets. The revenue received from the sale of gold and silver recovered from the Lomada trial heap leach project to 30 June 2013 was $1.1 million. These proceeds are offset against the capitalised costs of Lomada Project development in compliance with IAS 16 (2012: $0.8 million). Amortisation is charged based on the unit-of-production method.

Surface rights 

The Company owns the surface rights to over 63,000 hectares of land encompassing the Estancia La Bajada, Estancia El Tranquilo and the Estancia El Rincon.

The Company has clear title and outright ownership over Estancia La Bajada and Estancia El Tranquilo. There is a back in right granted to the sellers under Estancia El Rincon's title deed whereby the Company irrevocably committed to resell the estancia to its former owner in the event that two consecutive years elapse without mining activities. Current activity on this estancia includes the Lomada de Leiva project.

Assets in the course of construction

From 1 March 2011, exploration costs on the COSE Project have been capitalised as mineral properties - assets in the course of construction, prior to the receipt of full permitting for extraction of the mineralisation.

14. Property, plant and equipment