European Goldfields Limited
TSX : EGU
AIM : EGU

European Goldfields Limited

May 13, 2005 08:30 ET

European Goldfields Limited: Results for the First Quarter 2005; Loss Down 50% vs. Q1 2004-Cash Balance up US $45 Million

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - May 13, 2005) - European Goldfields Limited (TSX:EGU)(AIM:EGU) today reported its results for the first quarter to 31 March 2005. Highlights of the first quarter 2005 are:

Corporate:

- As at 31 March 2005, we had cash and cash equivalents of US$58.12 million, compared to US$65.25 million as at 31 December 2004 and US$13.43 million as at 31 March 2004.

- With the current cash balance and projected revenue, we expect to be self-funded to the end of 2006 and beyond, covering the permitting process for our major gold and base metal projects in Greece.

- In Q1 2005, we halved our loss to US$2.65 million ($0.02 per share), compared to US$5.28 million ($0.18 per share) in Q1 2004. This reduction in loss is particularly significant considering we recorded start-up costs in Greece of US$1.56 million in Q1 2005 compared to $Nil in Q1 2004.

- In March 2005, our shares were listed on the Toronto Stock Exchange (TSX), graduating from the TSX Venture Exchange.

- We completed our technical teams in Romania and Greece and recently recruited Neil Hepworth from Rio Tinto. Neil has over 20 years' experience as a mining engineer and his expertise in underground mining with backfill will complement our existing team at Stratoni.

Greece:

- Our 65%-owned subsidiary, Hellas Gold S.A., was awarded all environmental permits for its Stratoni operations. Final approval to commence mining operations is expected shortly, to be followed by production launch.

- The Stratoni mine is now ready to resume production following the recent completion of refurbishment work on the underground infrastructure and plant.

- We have also agreed terms for the construction of a new 1,900 metre adit tunnel at Stratoni to allow better access to the reserve.

- We have continued to update feasibility studies and prepare new business plans defining the way forward for Hellas Gold's major gold and base metal projects of Olympias and Skouries.

- We intend to submit our new business plans for Olympias and Skouries to the Greek government in Q4 2005, followed by updated feasibility studies in Q1 2006.

- By contract, the Greek State is committed to review the business plans within two months of submission, and issue all necessary environmental, mining and development permits within 10 months.

- We have also initiated a focused exploration programme to look for new discoveries in Greece. We have developed a good exploration model defining where we must look for further Olympias and Skouries type targets and we will be actively pursuing these opportunities in 2005.

Romania:

- In Romania, we published a new, better defined estimate for our 80%-owned Certej deposit which outlined resources of 31.4 Mt grading 2.1 g/t gold and 11 g/t silver for 2.3 Moz of gold equivalent. This estimate includes a 11.4 Mt high grade core to the deposit grading 3.4 g/t at a 2 g/t gold cut-off. This work has underpinned the fact that Certej can be mined more selectively to optimise an open pit.

- We have continued work on an in-house pre-feasibility study for Certej, which we expect to complete in Q2 2005. The pre-feasibility study is focused on generating a higher grade metallurgical concentrate, optimising the pit and defining appropriate mining, plant and tailings infrastructure.

- We were awarded a new exploration licence area, referred to as Cainel, which covers an area of 31.3 km2 and is located contiguous with our Certej property. Exploration work continues to define the mineralised system with a view to either defining a stand-alone project or a satellite for Certej.

David Reading, CEO of European Goldfields, said: "The first quarter has seen further progress on our Greek assets with the key environmental permits being awarded for Stratoni, the first such permits to be granted in the country for over six years. Subject to being awarded the ensuing mining permit, we are now ready to commence production. In Romania we are pleased with the progress made on the in-house pre-feasibility study and at increasing the grade at Certej, as well as being excited about prospects of Cainel, the licence awarded to us in January this year."

About European Goldfields

European Goldfields Limited is a resource company involved in the acquisition, exploration and development of mineral properties in Greece, Romania and the Balkans.

Greece - European Goldfields holds a 65% interest in Hellas Gold S.A. Hellas Gold owns assets in Northern Greece which consist of three near-production deposits within 70-year mining concessions covering a total area of 317 km2. The deposits include the polymetallic projects of Stratoni and Olympias which contain gold, lead, zinc and silver, and the copper-gold porphyry body referred to as Skouries. All three deposits have been well defined with over 200,000 metres of drilling and the completion of feasibility studies and later engineering studies.

The total proven and probable reserves of these assets are 17.0 Moz on a gold equivalent basis (65% attributable equals 11.1 Moz) from a measured and indicated resource base of 21.8 Moz gold equivalent (65% attributable equals 14.2 Moz). These assets represent some of the largest defined deposits in Europe. The three deposits are located within a 10 km radius of each other, making this effectively a gold and base metal centre. Furthermore, both Stratoni and Olympias were previously in production and have extensive existing mining and plant infrastructure and a ship loading facility on the Aegean Sea, making them near-production properties which require new permits. Hellas Gold's assets also include potential revenue generating stockpiles and tailings located on the surface.

Romania - European Goldfields holds five mineral properties located within the "Golden Quadrilateral" area of Romania, where it has embarked on a resource development and pre-feasibility programme to underpin the value of its 80%-owned Certej deposit and surrounding satellite bodies. The Certej deposit hosts measured and indicated resources of 31.4 Mt grading 2.1 g/t gold and 11 g/t silver for 2.34 Moz of gold equivalent (80% attributable equals 1.88 Moz).

For additional information on the resource and reserve estimates quoted above, please refer to the Company's Resources & Reserves Declaration at http://www.egoldfields.com/goldfields/resources.jsp.

Forward-looking statements

This news release contains certain forward-looking statements concerning the Company's future operations, economic performances, financial condition and financing plans. These statements are based on certain assumptions and analyses made by the Company in light of the its experience and its perception of historical trends, current conditions and expected future developments as well as other factors the Company believes are appropriate in the circumstances. However, whether actual results and developments will conform to the Company's expectations and predictions is subject to a number of risks, uncertainties and assumptions. Consequently, all of the forward-looking statements made in this news release are qualified by these cautionary statements, and there can be no assurance that the results or developments anticipated by the Company will be realised or, even if substantially realised, that they will have the expected consequences to or effects on the Company and its subsidiaries or their businesses or operations. The Company undertakes no obligation and do not intend to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable law.

MANAGEMENT'S DISCUSSION & ANALYSIS

FOR THE THREE-MONTH PERIOD ENDED 31 MARCH 2005

The following discussion and analysis, prepared as at 13 May 2005, is intended to assist in the understanding and assessment of the trends and significant changes in the results of operations and financial conditions of European Goldfields Limited (the "Company"). Historical results may not indicate future performance. Forward-looking statements are subject to a variety of factors that could cause actual results to differ materially from those contemplated by these statements. The following discussion and analysis should be read in conjunction with the Company's unaudited consolidated financial statements for the three-month periods ended 31 March 2005 and 2004 and accompanying notes (the "Consolidated Financial Statements").

Additional information relating to the Company is available on the Canadian System for Electronic Document Analysis and Retrieval (SEDAR) at http://www.sedar.com. Except as otherwise noted, all dollar amounts in the following discussion and analysis and the Consolidated Financial Statements are stated in United States dollars.

Overview

The Company, a company incorporated in the Yukon, Canada, is a resource company involved in the acquisition, exploration and development of mineral properties in Greece, Romania and the Balkans.

The Company's Common Shares are listed on the AIM Market of the London Stock Exchange and on the Toronto Stock Exchange (TSX) under the symbol "EGU".

Greece - As at 31 December 2004, the Company held a 65% interest (on a fully-diluted basis) in Hellas Gold S.A ("Hellas Gold"). Hellas Gold owns assets in Northern Greece which include 70-year mining concessions over a total area of 317 km2 and three polymetallic near-production deposits, known as Olympias, Stratoni and Skouries, which contain proven and probable reserves. The Stratoni and Olympias deposits were previously in production and benefit from significant infrastructure which includes underground mining development, two plants and a ship loading facility on the Aegean Sea. Hellas Gold's assets also include potential revenue generating stockpiles and tailings located on the surface.

Romania - In Romania, the Company holds a 80% interest in Deva Gold S.A. and a 100% interest in European Goldfields (Romania) SRL, which are in the process of exploring their mineral properties in Romania and have not yet determined whether those properties contain economic reserves.

Results of operations

The Company's results of operations for the three-month period ended 31 March 2005 were comprised primarily of activities related to the Company's regional exploration programs in Romania and the results of operations of the Company's 65%-owned subsidiary Hellas Gold. The Company continues to incur losses and until commercial production commences and revenues are generated, the Company will continue to do so.



The Company's results of operations for the eight most recently
completed quarters are summarised in the following table:

---------------------------------------------------------------------
(in thousands
of US
dollars, 2005 2004 2004 2004 2004 2003 2003 2003
except per Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2
share amounts) $ $ $ $ $ $ $ $
---------------------------------------------------------------------
Statement of
loss and
deficit
Interest
Income 326 279 143 60 18 28 16 69
Expenses 3,831 9,225 2,854 2,848 5,042 1,715 293 352
Loss 2,652 8,134 2,190 3,580 5,279 1,687 277 283
Loss per
share (cents) 0.02 0.17 0.05 0.09 0.18 0.08 0.01 0.01
Balance sheet
Working
capital 57,285 63,480 29,045 31,117 14,413 5,058 5,433 6,709
Total
assets 300,689 304,758 86,879 83,517 67,875 45,943 29,929 29,785
Non current
liabilities 71,179 71,320 - - - - - -
Statement of
cash flows
Deferred
exploration
and
development
costs -
Romania 860 2,462 1,171 943 1,394 1,097 1,088 1,134
Plant and
equipment -
Greece 1,582 - - - - - - -
---------------------------------------------------------------------

The breakdown of deferred exploration and development costs per
mineral property for the three-month periods ended 31 March 2005 and
2004 is as follows:

Three-month periods ended 31 March

----------------------------------
2005 2004
(in thousands of US dollars) $ (%) $ (%)
--------------------------------------------------------------------
Romanian mineral properties
Certej 685 (80%) 1,171 (84%)
Caniel 102 (12%) - (- %)
Zlatna - (- %) 139 (10%)
Voia 17 (2%) 28 (2%)
Baita-Craciunesti 40 (5%) 42 (3%)
Bolcana 16 (1%) 14 (1%)
--------------------------------------------------------------------
860 (100%) 1,394 (100%)
--------------------------------------------------------------------
Greek mineral properties
Stratoni - (- %) - (- %)
Skouries - (- %) - (- %)
Olympias - (- %) - (- %)
--------------------------------------------------------------------
- (- %) - (- %)
--------------------------------------------------------------------
Total 860 (100%) 1,394 (100%)
--------------------------------------------------------------------


The Company incurred a loss of $2.65 million ($0.02 per share) for the three-month period ended 31 March 2005, compared to $5.28 million ($0.18 per share) for the same period of 2004. The following factors have contributed to this reduction in loss:

- The Company's corporate administrative and overhead expenses have decreased by 28% from $1.25 million in Q1 2004 to $0.89 million in Q1 2005, primarily as a result of the Company being less reliant on external consultants and professional advisors following recruitment of full-time employees in 2004. Also, in Q1 2004, the Company incurred higher expenses for the listing of its common shares on the AIM Market of the London Stock Exchange, compared to expenses incurred in Q1 2005 for the listing on the Toronto Stock Exchange.

- In February 2004, the Company acquired an initial 37.97% interest in Hellas Gold. From 9 February 2004 to 31 March 2004, the Company's interest in Hellas Gold was accounted for as an equity investment. In November 2004, the Company completed the acquisition of shares in Hellas Gold, increasing its total interest from 37.97% to 55.70%, and assumed an obligation to subscribe to additional shares in Hellas Gold, resulting in an interest of 65% on a fully-diluted basis. The acquisition was accounted for as a purchase and the results of operations of Hellas Gold were included in the consolidated statements of loss and deficit from 30 November 2004, the effective date of the acquisition. Hellas Gold's operating, general and administrative expenses of $1.56 million in Q1 2005 were incorporated in the Company's consolidated statement of loss and deficit for the period, compared to the Company's share of loss in equity investment of $0.26 million in Q1 2004.

- Effective 1 October 2004, the Company changed its functional currency from the Canadian dollar to the United States dollar. Nevertheless, during Q1 2005, the Company retained significant cash balances in Euro in order to meet a Euro subscription obligation in Hellas Gold. Consequently, the Company recorded a foreign exchange loss of $0.99 million in Q1 2005, which resulted from a strengthening of the United States dollar against the Euro as at 31 March 2005 compared to 31 December 2004. In Q1 2004, the Company realised a foreign exchange gain of $0.47 million mainly due to the weakening of the Canadian dollar against the Euro as at 31 March 2004 compared to 31 December 2003.

- The Company's amortisation expense has increased to $0.26 million in Q1 2005 from $Nil in Q1 2004 primarily as a result of the Company acquiring significant assets through the acquisition of a 65% interest in Hellas Gold in 2004.

- In December 2003, the Company raised $15.09 million by way of a brokered private placement of convertible loan notes, for which the Company recorded a non-cash expense for financing costs of $1.12 million in Q1 2004, compared to $Nil in Q1 2005.

- The Company recorded a non-cash stock-based compensation expense of $0.13 million in Q1 2005, compared to $3.17 million in Q1 2004. Such decrease reflects the fact that no share options or milestone shares were granted in Q1 2005 compared to significant grants to newly hired employees in Q1 2004.

- The Company recorded a credit for future income taxes of $0.71 million in Q1 2005, compared to $Nil in Q1 2004. The credit has arisen due to the Company recognising a future tax asset for the losses carried forward in Hellas Gold.

- The Company's interest income has increased to $0.33 million in Q1 2005 from $0.02 million in Q1 2004, primarily as a result of the Company holding significantly higher cash balances in Q1 2005 following completion of private placements during 2004.

Liquidity and capital resources

As at 31 March 2005, the Company had cash and cash equivalents of $58.12 million, compared to $65.25 million as at 31 December 2004 and $13.43 million as at 31 March 2004.

As at 31 March 2005, the Company had working capital of $57.29 million, compared to $63.48 million as at 31 December 2004 and $14.41 million as at 31 March 2004.

The increase in cash and cash equivalents and working capital as at 31 March 2005, compared to the balances as at 31 March 2004, resulted primarily from two private placements ($93.50 million), the effects of foreign currency translation on cash ($3.75 million), the exercise of warrants and options ($3.40 million) and interest earned ($0.81 million), partly offset by the payment of the cash portion of the acquisition price for an additional 35% interest in Hellas Gold ($37.01 million), operating losses ($9.47 million), deferred exploration and development costs in Romania ($5.44 million), capital raising costs ($4.32 million) and capital expenditure in Greece ($1.58 million).

The decrease in cash and cash equivalents and working capital as at 31 March 2005, compared to the balances as at 31 December 2004, resulted primarily from operating losses ($3.05 million), capital expenditure in Greece ($1.58 million), deferred exploration and development costs in Romania ($0.86 million) and the effects of foreign currency translation on cash ($1.75 million), partly offset by the exercise of options ($0.17 million).

During the three-month period ended 31 March 2005, the Company received total proceeds of $0.17 million through the exercise of 75,000 common share options at a weighted average price of C$2.80 per share.

The following table sets forth the Company's contractual obligations including payments due for each of the next five years and thereafter:



Payments due by period
(in thousands of
US dollars)
---------------------------------------------------------------------
Contractual Less than After
obligations Total 1 year 1-3 years 4-5 years 5 years

---------------------------------------------------------------------
Operating lease
(London office) 1,037 104 373 373 187
Exploration
licence
spending
commitments
(Voia, Romania) 1,500 - 1,500 - -
---------------------------------------------------------------------
Total
contractual
obligations 2,537 104 1,873 373 187
---------------------------------------------------------------------


For the coming year, the Company believes it has adequate funds available to meet its corporate and administrative obligations (estimated at $2.94 million for the remainder of 2005) and its planned expenditures on its mineral properties (estimated at $5.10 million for Romania and at $7.95 million for Greece for the remainder of 2005).

Change in functional and reporting currency

Effective 1 October 2004, the Company changed its functional currency from the Canadian dollar to the United States dollar. In general, this change resulted from a combination of a gradual increase in the operational exposure to the United States dollar and predominantly United States dollar based asset and investment base of the Company and from a gradual increase in the overall proportion of business activities conducted in United States dollars. Concurrent with this change in functional currency, the Company adopted the United States dollar as its reporting currency. In accordance with accounting principles generally accepted in Canada ("Canadian GAAP"), the change was effected by translating all assets and liabilities, at the end of the prior reporting periods, at the existing United States/Canadian dollar foreign exchange spot rate, while income for those periods were translated at the average rate for each period. Equity transactions have been translated at the historical rates, with opening equity on 30 June 2000, restated at the rate of exchange on that date. The resulting net translation adjustment has been credited to the cumulative translation adjustment account in the equity section of the balance sheet.

Outstanding share data

The following represents all equity shares outstanding and the number of common shares into which all securities are convertible, exercisable or exchangeable:



Preferred shares: Nil

Common shares: 112,173,708
Common share options: 3,720,000
Common share broker warrants: 415,498
-----------
Common shares (fully-diluted): 116,309,206


Outlook

In Greece, the Company is currently updating the feasibility studies and preparing new business and environmental plans defining the way forward for Hellas Gold's gold and base metal projects of Olympias and Skouries. The Company will also continue to look for new discoveries through focused exploration programmes.

In Romania, work at Certej is now directed towards completing an in-house pre-feasibility study with specific focus on optimising metallurgical recoveries and defining a practical open pit. The Company also continues to look at new satellite targets around the Certej deposit with a view to adding additional incremental ounces. At Cainel, underground channel sampling continues to define the bigger mineralised target covering an area of 200 x 1,000 metres. Aggressive drilling campaigns will be effected during the second half of 2005 to test the Company's geological model and the potential for a major mineralised system.

The Company also intends to continue growing its portfolio by new exploration discoveries and the pursuit of accretive, value enhancing acquisitions in Europe and the Balkans.

Risks and uncertainties

The risks and uncertainties affecting the Company are substantially unchanged from those disclosed in the Company's Management's Discussion & Analysis for the year ended 31 December 2004.


Contact Information

  • European Goldfields Limited
    David Reading, Chief Executive Officer
    +44 (0)20 7408 9534 (Office)
    +44 (0)7703 190 652 (Mobile)
    or
    European Goldfields Limited
    David Grannell, Chief Financial Officer
    +44 (0)20 7408 9534 (Office)
    +44 (0)7703 190 652 (Mobile)
    info@egoldfields.com
    http://www.egoldfields.com
    or
    Buchanan Communications
    Bobby Morse
    +44 (0)20 7466 5000 (Office)
    +44 (0)7802 875 227 (Mobile)
    bobbym@buchanan.uk.com
    or
    Buchanan Communications
    Ben Willey
    +44 (0)20 7466 5000 (Office)
    +44 (0)7802 875 227 (Mobile)