La Mancha Resources Inc.
TSX : LMA

La Mancha Resources Inc.

November 09, 2007 16:54 ET

La Mancha Reports Third Quarter Results

All amounts are in CA dollars, unless otherwise indicated. Unaudited

MONTREAL, QUEBEC--(Marketwire - Nov. 9, 2007) -

HIGHLIGHTS OF THE THIRD QUARTER

- Gold production of 12,570 ounces

- Revised 2007 gold production target of 51,550 ounces

- Net loss of $3.2 million

- Commercial paper holdings re-qualified as long-term assets

- Reduction of workforce by 275 at the Hassai mine

La Mancha Resources Inc. (TSX:LMA)(hereinafter "La Mancha" or the "Company") produced 12,570 ounces of gold at an average cash cost of US$476 during the third quarter of 2007, generating revenues of $9.4 million. This compares to 16,840 ounces of gold produced at an average cost of US$345 in the corresponding period of 2006, for revenues of $16.2 million. This decrease in both total production and revenues is the result of 1) lower gold output at both the Hassai and Ity mines and 2) a reduction in La Mancha's interest in the Ity mine (from 51% to 45.9%) effective May 25, 2007, which forces the Company to cease consolidating 100% of Ity's results and begin consolidating them by the proportional method as of that date.

The recent increase in the price of gold was offset by higher operating costs, an increase in exploration and administrative expenses and an impairment charge associated with commercial paper holdings, resulting in a net loss of $3.2 million for the quarter. This compares to net earnings of $1.9 million in the third quarter of 2006.

Operations generated cash flow of ($0.8) million during the third quarter of 2007, compared to cash flow of $5.9 million in the corresponding quarter of 2006.

For the nine months ended September 30, 2007, the net loss was $7.5 million and revenues were $36.4 million, compared to net earnings of $7.1 million and revenues of $44.3 million for the first nine months of 2006. Gold production recorded during this period totalled 38,690 ounces in 2007 compared to 46,110 ounces in 2006.

FINANCIAL POSITION

In light of the recent developments in the restructuring of the Canadian commercial paper market, the Company has elected to re-classify the $12.0 million it holds in commercial paper as a long-term investment, as a result of which its cash position now stands at $19.2 million. Moreover, a $1.8 million impairment charge was recorded on these same assets in order to reflect the potential loss that could be recorded should the restructuring process orchestrated under the "Montreal Proposal" fail to produce results.

The Company currently has sufficient cash on hand and/or financing alternatives to fund ongoing operations and pursue its project developments assuming that this market disruption is settled in a timely manner.

OPERATIONS

The Hassai mine produced 18,680 ounces of gold (7,470 attributable to La Mancha) during the third quarter of 2007, compared to 28,040 ounces of gold (11,220 attributable to La Mancha) produced during the corresponding period of 2006. Despite slightly better gold recovery, gold production fell due to a) a decline in the grade of the ore milled, to 3.6 g Au/t from 4.4 g Au/t a year earlier and b) the lower tonnage of SBR ore milled.

Impacted by the lower production rate, the cash cost increased to US$494 per ounce during the third quarter of 2007 from US$337 per ounce during the corresponding period of 2006. This increase can be attributed to several factors, including the lower grade of the ore milled, higher stripping ratios and a 13% increase in the price of consumables.

As of September 30, only 24% of Hassai's reserves was SBR type, mostly concentrated into smaller pits, thus limiting the rate at which it is being mined and made available to the mill. Due to the delays in completing the commissioning of the recently-built quartz circuit, the decrease in SBR tonnage was not compensated by a new quartz output as anticipated. The slow start of the Quartz Circuit is due to crusher bearing and electrical failures. Moreover, the combined mixing circuit has suffered some capacity issues.

Hassai's inability to process the quartz ore as planned during the third quarter has had a significant impact on both the total tonnage milled and the average grade milled, which will remain lower than the average grade of the deposit (4.7 g Au/t as of December 31, 2006) as long the higher-grade quartz ore (up to 6.0 g Au/t) stockpiled next to the mill will remain unprocessed.

The new quartz circuit was completed in June 2007 and has a design processing capacity of 1,400 tpd. At September 30, 2007, there were approximately 1.0 million tonnes of quartz ore at an average grade of 4.6 g Au/t stockpiled near the mill, representing approximately two years of plant capacity once the quartz circuit becomes fully operational.

Plant Operation improvement will occur through a number of initiatives planned for the fourth quarter including:

- Review and revision of plant maintenance management

- Review and revision of plant production management

- Redesign (minor) of the mixing circuit to enhance capacity

A multinational team of La Mancha personnel and consultants has been assembled to drive the improvement program.

This delay in completing the commissioning of the new quartz line has forced La Mancha to revise its 2007 attributable gold production target for the Hassai mine from 44,000 ounces to 31,750 ounces. This new revised objective is based on a production rate of 1600 tonnes per day of SBR at an average grade of 4.26 g Au/t. Management considers this production rate to be sustainable until the end of the first quarter of 2008, at which point all currently-known SBR reserves will have been mined.

In order to restore the profitability of the operation and adapt the size of its workforce in Sudan to the temporally-decreased capacity of its operations, the Company was obliged to reduce Hassai's workforce by 25%. On October 1, 2007, 275 employees agreed to leave the Company on the terms of the mutual agreement presented to them in September. A charge of $350,000 was provisioned to that effect in the third quarter results. The decreased mining requirements will lead to further workforce reductions in the first half of 2008. Some positions will be replaced with seasoned mining professionals or other skilled personnel to provide quality control.

For the nine months ended September 30, 2007, Hassai's contribution amounted to 24,960 ounces of gold at a cash cost of US$475 per ounce compared to 30,340 ounces at a cash cost of US$315 per ounce for the first nine months of 2006.

The Ity mine produced a total of 11,100 ounces of gold (5,100 attributable to La Mancha) during the third quarter of 2007, in line with its target. This compares to production of 11,010 ounces (5,620 attributable to La Mancha) during the third quarter of 2006. The decrease in La Mancha's attributable production is explained by the reduction of the Company's interest in the mine earlier this year. In order to renew its mining permit until 2013, La Mancha's ownership in the Ity mine was reduced from 51% to 45.9%, in May 2007.

Total tonnage milled was 120,300 tonnes during the third quarter of 2007, compared to 97,775 tonnes during the third quarter of 2006. This increase in the processing rate more than compensated for the decrease in grade milled and the lower recovery rate observed between the third quarter of 2007 and 2006. The 23% increase in tonnage milled during the third quarter of 2007 compared to the volume milled during the third quarter of 2006 is due to the successful introduction of a third shift at the mill.

Although cash costs decreased 9% from the US$493 per ounce recorded during the previous quarter of 2007 as a direct consequence of higher mill output, cash costs of US$449 per ounce for the third quarter of 2007 were nevertheless higher than cash costs of US$362 per ounce in same quarter of 2006. Most of this increase can be attributed to the decrease in grade milled. The average grade of the ore milled during the third quarter of 2007 remained inferior to the average grade of the reserves (5.2 g Au/t), standing at 3.8 g Au/t compared to 4.3 g Au/t for the corresponding quarter of 2006. Management expects the average grade milled to increase to the average grade of the reserves once mining shifts from the Flotuo-Zia pit to the new Mount Ity pit, in early 2008.

For the nine months ended September 30, 2007, Ity's contribution was 14,520 ounces of gold at a cash cost of US$467 per ounce compared to 15,770 ounces at a cash cost of US$358 per ounce during the first nine months of 2006.

"The improvements seen at the Ity mine in the third quarter are the first direct results of the optimization program launched at the beginning of 2007," said Michel Cuilhe, President and CEO of La Mancha. "In addition to the third work shift implemented at the mill, we should mention that the new waste management procedures that aim at reducing transportation costs and the new cyanide mixing station that helps optimizing the development of cyanide solutions more specifically adjusted to each ore type are good examples of some of the additional cost cutting measures recently implemented. We expect the profitability of the Ity mine to further improve in the upcoming quarters as these new measures will start to have an effect. The higher grades to be mined from the new Mount Ity pit in 2008 should also have a significant impact on the mine's production and profitability." added Mr. Cuilhe.

PROJECT DEVELOPMENT

The development of White Foil and Frog's Leg, the Company's two advanced mining projects in Australia, continued over the third quarter.

At Frog's Leg, significant progress was made on several fronts to ensure that the planned underground mining production will resume as planned before the end of the second quarter of 2008. The feasibility study is now almost complete and will be made public on November 29, 2007. To complete the feasibility study, La Mancha, who oversaw the preparation of the document, worked in collaboration with its joint-venture partner and Australian based mining company Dioro (AUX:DIO), Australian Mining Consultancy (mine design) and CRC Mining Consultants (geotechnical analysis).

Underground development of the mine started in July and is progressing at a steady pace. To date, more than 650 meters of the decline have been completed at a capital cost of $1.4 million. By January 2008, management expects that the underground development team will have advanced the decline by another 700 meters, at which time they should be in a position to start preparing the first stope for the Rocket ore body. In the meantime, mining equipment purchases and workforce development are being managed to ensure an orderly start to production in accordance with the planned schedule.

The reserve definition drilling program remains an important priority at Frog's Leg. The exploration update completed in September revealed that several additional high-grade zones have been intersected, some of which suggest that the mineralization may be continuous between the Rocket and Mist ore bodies, thus potentially leading to lower mine development costs and increased resource. A total of six additional holes (3,200m) should be completed before the end of the fourth quarter of 2007 to further delineate the extent of the mineralization between the Mist and Rocket resources.

Dewatering of the White Foil pit is now finished. La Mancha's teams are currently working at removing the mud covering the bottom of the pit, and expect to start grade-control drilling before the end of November. The Company is also finalizing the mine design and meeting the last requirements of the Australian Mines Department to obtain the appropriate approvals required for mining. Discussions regarding the toll milling agreement are also being held. Since each of these steps must be completed before resuming operations, management does not expect White Foil to resume operations in 2007, thus reducing White Foil's expected gold contribution to La Mancha's 2007 total production to nil.

Michel Cuilhe also noted : "Due to the temporary delay in resuming operation at White Foil and to the slow start of the quartz line in Hassai, we are revising our gold production forecast for 2007 from 74,300 ounces of gold to 51,550 ounces of gold. The first year following the closing of the reverse takeover that transformed the Company into a global producer was a transition year that demanded the launch of a number of projects aimed at unlocking the value of assets that had been underutilized for several years. 2008 should permit La Mancha to reap the rewards of the initiatives taken in the recent months. We are confident that the start of production at Frog's Leg and White Foil will significantly contribute to increasing production in 2008. Moreover, efficiency enhancements and the cost reduction programs implemented at Hassai and Ity should help improve the Company's profitability going forward."

CORPORATE DEVELOPMENT

Appointment

On November 9, 2007, Mr. Marc Quesnoy announced his resignation from La Mancha's board of directors. Mr. Quesnoy was also a member of the audit committee and the corporate governance and human resources committee.

The following have been added to the board:

Sebastien de Montessus

A business graduate from ESCP in Paris, Mr de Montessus joined the Areva group in 2002 where he evolved in progressive Strategy and Marketing positions. On (date) he was appointed Head of Areva's mining division. Prior to joining Areva, Mr. de Montessus also worked in the telecom and banking industries.

Nicolas Nouveau

Mr. Nouveau cumulates extensive experience in finance and accounting gained mostly in an international environment. Mr. Nouveau currently acts as the Vice President Finance for Areva's mining division. He holds an MBA from the School of Management of Lyon and an engeneering degree from the Technicological University of Compiegne.

Alan Peltz

Mr. Peltz has gained almost 30 years of experience with Burndy Corp./Framatome USA where he acted as Chairman of the Board and CEO from 1997 until his retirement in 2002. He now seats on the board of several organizations. Mr. Peltz holds an MBA from the Pace University and a B.A.A. in accounting from the Baruch School of Business and Public Administration. He also completed an advanced management program at Harvard Business School

In addition, Mr. Peltz has been appointed to the audit committee and the corporate governance and human resources committee.

Investor Relations Calendar

November 19-20: San Francisco Gold Show

Consolidated Financial Statements

The management discussion and analysis and unaudited consolidated financial statements with explanatory notes for the quarter ended September 30, 2007, are available in PDF format on La Mancha's website at www.lamancha.ca and through SEDAR at www.sedar.com.

ABOUT LA MANCHA RESOURCES Inc.:

La Mancha Resources Inc. is an international gold producer based in Canada with operations, development projects and exploration activities in Africa, Australia and Argentina. La Mancha's shares trade on the Toronto Stock Exchange (TSX) under the symbol "LMA". For more information, visit the Company's website at www.lamancha.ca.

Caution Concerning Forward-Looking Statements

This press release contains certain "forward-looking statements", including, but not limited to, statements regarding the Company's strategic plans, future commercial production, sales and financial results, development, construction and production targets and timetables, mine operating costs; statements regarding capital expenditures, development plans, and exploration programs, objectives and budgets; statements regarding when the new quartz line will be commissioned, the increase of its capacity over time and its anticipated positive impact on the production and costs; statements regarding when operations will start at the Mount Ity pit and their impact on the average grade milled; statements regarding when Frog's Leg feasibility study will be completed; statements regarding the resumption of White Foil production. Forward-looking statements express, as at the date of this press release, the Company's plans, estimates, forecasts, projections, expectations or beliefs as to future events and results. Forward-looking statements involve a number of risks and uncertainties, and there can be no assurance that such statements will prove to be accurate. Therefore, actual results and future events could differ materially from those anticipated in such statements. Risks and uncertainties that could cause results or future events to differ materially from current expectations expressed or implied by the forward-looking statements include, but are not limited to, factors associated with fluctuations in the market price of precious metals, mining industry risks, exploration risks, risks associated with foreign operations, environmental risks and hazards, uncertainty as to calculation of mineral reserves, requirement of additional financing or additional permits, authorizations or licences, risks of delays in construction and production and other risks referred to in La Mancha's 2006 Annual Information Form filed with the Securities Commissions, as well as the Toronto Stock Exchange.



HIGHLIGHTS


(unaudited)
(All amounts are in Third Quarter ended First 9 months ended
CDN dollars unless September 30, September 30 September 30 September 30
otherwise noted) 2007 2006 2007 2006
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RESULTS (consolidated,
in thousands of $)

Revenues 9,384 16,165 36,361 44,337
Cash flow from
operating activities (832) 5,893 430 10,853
Net earnings (loss) (3,239) 1,879 (7,553) 7,103
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PER SHARE ($)

Net earnings (loss) (0.02) 0.02 (0.05) 0.08
Basic weighted average
number of common
shares outstanding
(in thousands) 141,989 91,682 141,910 90,567
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ATTRIBUTABLE GOLD
PRODUCTION

Number of ounces
produced 12,570 16,840 39,480 46,110
Mine operating costs
(US$ per ounce) 476 345 472 330
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September 30 December 31
2007 2006
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FINANCIAL POSITION
(in thousands of $)

Cash and short-term
investments 19,261 47,991
Total assets 130,709 159,833
Shareholders' equity 107,902 119,983
Total number of shares
outstanding
(in thousands) 142,008 141,693
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GOLD PRODUCTION For the 3rd quarter ended For the 9 months ended
STATISTICS September 30 September 30 September 30 September 30
2007 2006 2007 2006
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Hassai (40%)
Attributable
Production
(ounces) 7,470 11,220 24,960 30,340
Tonnage milled (t) 216,220 290,000 675,000 700,000
Grade milled (g Au/t) 3.6 4.4 3.8 4.5
Recovery rate (%) 75 69 76 75
Cash costs
(US$ per ounce) 494 337 475 315
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ITY (45.9%)
Attributable
Production
(ounces) 5,100 5,620 14,520 15,770
Tonnage milled (t) 120,300 97,775 312,950 311,850
Grade milled (g Au/t) 3.8 4.3 3.6 3.7
recovery rate (%) 76 81 83 84
Cash costs
(US$ per ounce) 449 362 467 358
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Contact Information

  • La Mancha
    Martin Amyot
    Vice President Corporate Development
    514-987-5115
    info@lamancha.ca