La Mancha Resources Inc.
TSX : LMA

La Mancha Resources Inc.

March 27, 2009 14:00 ET

A Profitable Fourth Quarter Consolidates: La Mancha 2008 Year-End Financial Results

All amounts are expressed in CA dollars, unless otherwise indicated. Audited

MONTREAL, QUEBEC--(Marketwire - March 27, 2009) - La Mancha Resources Inc. (TSX:LMA) -

2008 HIGHLIGHTS

- Revenues of $53.6 million

- Cash flow from operating activities of $3.3 million

- Net loss of $5.4 million

- Frog's Leg becomes La Mancha's third mine in production

- First profitable quarter for La Mancha in Q4

- Total production increases 33% to 71,550 ounces at US$512 per ounce

- Frog's Leg achieves commercial production status as of January 1, 2009

- Positive feasibility study for a fourth mine at White Foil (Australia)

- Cash and short term investments of $12.2 million

La Mancha Resources Inc. (TSX:LMA) (hereinafter "La Mancha" or the "Company") produced 71,550 ounces of gold at an average cash cost of US$512 per ounce in 2008. This compares to production of 53,900 ounces at an average cash cost of US$485 the previous year. The increase in production is due to the start-up of La Mancha's third mine, Frog's Leg, in the summer of 2008 and to the improved performance of the Ity mine, which together compensated for a decline in performance at the Hassai mine. Revenues totalled $53.6 million compared to $48.5 million in 2007 as a result of this increased production and stronger gold prices.

La Mancha recorded a mine operating loss of $43,000 in 2008, compared to a mine operating loss of $8.2 million for 2007. As shown in Table 1, this improved performance is the result of a declining cash cost per ounce, which translated in mine operating earnings for the second half of the year.



Table 1.
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Nine-month Three-month Twelve-month
period ended period ended period ended
September 30, Dec. 31, Dec. 31,
2008 2008 2008
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Production (in oz) 50,565 20,985 71,550
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Average cash cost (in USD/oz) 558 398 512
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Mine operating earnings/loss
(in 000's of CA$) (1,336) 1,293 (43)
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Net earnings/loss
(in 000's of CA$) (6,596) 1,188 (5,408)
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Michel Cuilhe, President and CEO of La Mancha, commented: "We are pleased to say that significant progress was made in 2008. With a third mine successfully put to production, the positive conclusions of a feasibility study supporting the development of a fourth mine in Australia, and the significant increase of our gold production and resources, La Mancha is definitely well engaged on the growth path. Although we have improved on several fronts since our transformation in 2006, we have yet to achieve one key milestone: consistent profitability. The profitability achieved in our most recent quarter, reduced exploration expenses for 2009 and the steady ramp-up of our new Frog's Leg mine in Australia are all pointing in the right direction for us to achieve this goal. The operating, exploration and managerial skills of our 1,200 employees will all be geared towards that objective in 2009."

La Mancha recorded a net loss of $5.4 million in 2008, compared to a net loss of $10.8 million for 2007. The Company's 2008 performance was negatively affected by two "non-cash" items: a $3.1 million write-down of asset-backed commercial paper (ABCP) investments and a $1.1 million loss associated with a gold-denominated loan contracted on a non-recourse basis by its Argentinean subsidiary, Minera Patagonia. This Argentinean subsidiary was declared bankrupt in November 2008 by a local court. Consequently, the subsidiary including its gold-denominated loan was deconsolidated from La Mancha's balance sheet as of December 31, 2008.

As of December 31, 2008, La Mancha's cash and short term investments stood at $12.2 million and long-term investments in various securities amounted to an additional $8.2 million. In June 2008, La Mancha signed a medium-term debt financing agreement with Areva, its main shareholder, for an AU $15 million revolving facility that was later increased to AU $22 million in December 2008. The facility was mainly used to support La Mancha's share of the Frog's Leg development, and expires on December 31, 2011. AU $15.5 million were drawn as of December 31, 2008.

RESERVE AND RESOURCE UPDATE

La Mancha's Measured and Indicated resources ("M&I resources") total almost 1.77 million ounces of gold, up 34% from the 2007 year-end resources of 1.32 million ounces. Proven and Probable reserves ("P&P reserves") stood at 710,507 ounces of gold at the end of 2008 compared to 688,860 ounces a year earlier. The large increase in M&I resources in the past year is the direct consequence of the intense effort that the Company devoted to exploration on its four main properties over the course of 2008. Infill drilling and the completion of detailed extensional drilling at the Frog's Leg mine added 136,170 ounces to La Mancha's M&I resources, while tailings qualification at the Hassai mine added 114,000 ounces, Ity mine resource development drilling added 112,459 ounces and infill drilling at the White Foil project added 131,040 ounces.

OPERATIONS

Since its inauguration in May 2008, the Frog's Leg mine has generated 15,375 ounces of gold for La Mancha. La Mancha is the mine operator and has entered into a toll-milling agreement with the nearby Greenfield plant to secure milling availability for scheduled periods throughout the year.

As shown in Table 2, the Frog's Leg mine is gaining pace, with a steady increase in underground tonnage mined per month and steadily-improving ore grade. It should be noted that the combined increase in underground tonnage mined and associated grade peaked in December, representing a gold content mined of 7,025 ounces for the month, is in line with the forecast mine run rate in the 2007 feasibility study. Consequently, the mine reached "commercial production" status as of January 1, 2009. Proceeds from the sale of Frog's Log gold will therefore be added to La Mancha's revenues from that date.



Table 2
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2008 July August September October November December
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Underground
ore mined (T)(i) 21,183 29,855 24,116 35,550 36,349 44,962
Apparent grade
mined (g Au/T)(i) 3.36 3.86 4.30 4.39 4.03 4.86
Apparent gold content
of ore mined (oz)(i) 2,286 3,705 3,334 5,018 4,710 7,025
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(i) Data provided for 100% of the mine


As of December 31, 2008, total development cost for the Frog's Leg underground mine totaled $59.6 million ($30.0 million attributable to La Mancha), approximately on budget with respect to the 2007 feasibility study.

The underground mine is expected to generate between 37,000 and 42,000 ounces of gold for La Mancha in 2009, at a cash cost of US$450 per ounce. Frog's Leg is expected to operate at full production capacity throughout 2009 on the strength of the momentum gained towards the end of 2008 in terms of increased underground tonnage mined per month and improved ore grade. The new mining plan scheduled for completion at the end of the second quarter of 2009 is expected to lead to an increase in the Frog's Leg production rate.

The Hassai mine produced a total of 73,175 ounces of gold in 2008 (29,270 ounces attributable to La Mancha) at an average cash cost of US$603 per ounce, compared to 86,900 ounces (34,760 ounces attributable to La Mancha) the previous year at an average cash cost of US$481 per ounce.

The decrease in gold output from 2007 to 2008 was essentially due to lower gold recovery rates resulting from poor leaching kinetics due to water limitations imposed by drought in 2008, and to delays in completing the commissioning of the new quartz line. The increase in cash costs per ounce in 2008 can be mainly attributed to lower gold recovery rates and unfavourable fluctuations in currency exchange rates, responsible for approximately 44 and 32% of the increase in cash costs per ounce respectively.

Management trusts that two new recently-installed wells will cause recovery rates to improve in the upcoming months. Measures taken to enhance quartz line efficiency are continuing to pay dividends, as the quartz mill throughput for the fourth quarter increased by 58% over the previous quarter, resulting in record quarterly quartz-line production. For the first time, a quartz throughput of more than 30,000 tonnes per month was achieved for four consecutive months, with 44,540 tonnes milled in December. Management will build on this improved performance to gradually increase the rate of the quartz line to its design capacity of 2,000 tonnes per day.

The following table shows the quartz ore tonnage milled through the quartz line over the past twelve months: http://media3.marketwire.com/docs/mancha_ENG_0327.jpg

The Hassai mine is expected to produce between 62,500 and 75,000 ounces of gold in 2009 (25,000 and 30,000 ounces attributable to La Mancha) at a cash cost of US$673 per ounce, compared to 73,175 ounces of gold produced in 2008 (29,270 ounces attributable to La Mancha). In 2009, gold production will be supported by the efficiency of the recently-enhanced quartz line as the transition from siliceous-baritic rock (SBR) to quartz ore continues.

Exploration at the Hassai mine in 2008 yielded significant results on two fronts. First, on the gold front, the qualification of 7.1 of the 8.9 million tonnes of tailings accumulated on site during the first 15 years of mine production allowed the addition of 287,000 ounces of gold to M&I resources (114,800 ounces attributable to La Mancha) and 175,000 ounces of gold to inferred resources (70,000 ounces attributable to La Mancha). Drilling activities resumed in the first quarter of 2009 to upgrade the tailings inferred resource to the M&I category, and to qualify most of the remaining 1.8 million tonnes of tailings as resources. The Company expects to provide an update of resources contained into the tailings by the end of the second quarter of 2009.

This new resource, along with the gold contained into the Hassai quartz-type deposit that will continue to be delineated in 2009, will constitute the basis for a CIP/CIL feasibility study expected to be delivered at the end of 2009. An eventual CIP/CIL plant would considerably increase the recovery rate at Hassai, where gold is currently produced through heap leaching.

Ity mine production increased 36% to reach 54,460 ounces of gold in 2008 (24,995 ounces attributable to La Mancha) at an average cash cost of US$406 per ounce in 2008, compared to 39,960 ounces of gold (19,140 ounces attributable to La Mancha) the previous year at an average cash cost of US$491 per ounce.

This significant increase in gold production and decrease in the cash costs per ounce are mainly due to the improved gold grade of the ore mined in the second half of the year and better recovery. In mid-2008, the bulk of mining operations moved from the now-depleted Flotouo-Zia pit to the new, higher-grade Mount Ity pit.

The Ity mine is expected to produce between 50,110 and 61,000 ounces of gold in 2009 (23,000 ounces and 28,000 ounces attributable to La Mancha) at a cash cost of US$379 per ounce, compared to 54,460 ounces of gold produced in 2008 (24,995 ounces attributable to La Mancha). The production increase for 2009 will be generated by a full year of mining from the higher-grade Mount Ity pit.

In 2008, more than 16,900 meters of resource development drilling were completed at the Ity mine, targeting high potential zones. Of the 310 holes completed, 84% returned favourable intercepts, generating an increase of more than 245,000 ounces of gold in Ity's M&I resources (112,459 ounces attributable to La Mancha), or more than 45% since December 2007. The project's measured and indicated resources now stand at 768,100 ounces of gold (352,558 ounces attributable to La Mancha) compared to 523,091 ounces of gold at December 31, 2007 (240,099 ounces attributable to La Mancha).

Exploration work will continue in 2009 on the grounds of the Ity mine, starting with analysis of the recently-completed drilling. The focus this year will once again be on targets in immediate vicinity of the current operation but exploration will also venture onto the east side of the Cavaly river, which crosses the property. The first drill results are expected in the second quarter of 2009.

During the first quarter, 1,910 ounces of gold were recovered from the White Foil project in Australia, as tonnage from the broken ore inventory was hauled to and treated at the Greenfields mill. A total of 24,630 tonnes of ore were milled.

DEVELOPMENT PROJECT

On February 17, 2009, La Mancha announced its intention to put into production the first phase of the White Foil Project, which is expected to yield 69,160 ounces of gold production over a 27-month period. As the first phase of the project is already fully permitted and requires minimal development, White Foil is expected to start production as soon as a satisfactory milling agreement is signed. Highlights of the upcoming feasibility study are as follow:



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White Foil Phase 1 Feasibility Study
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Production:
Tonnage: Ore (tonnes) 980,000
Waste (tonnes) 1,770,305
Total (tonnes) 2,750,305
Average grade (g Au/t) 2.41
Gold reserves (in situ) 76,000 oz
Metallurgical recovery 91.0%
Gold recovered 69,160 oz
Annual production rate 30,740 oz
Mine life (Phase 1) 2.33 years

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Financials(i):
Initial capital cost CAD $1.3M
Cash costs per ounce US $480/oz
Net Present Value @ 6% discount CAD $22.0M
Net Present Value per share @ 6% discount CAD $0.15/share
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(i) All financial calculations are based on a gold price of US $810/oz and
a USD/AUD exchange rate of 1.50 and exclude costs incurred prior to
2009.


Discussions are underway with nearby milling facilities to secure a milling agreement and put the project into production rapidly, but as no milling agreement has yet been signed, management has conservatively excluded any White Foil Phase 1 production from its 2009 production forecast. However, it is possible that the White Foil project will start contributing to La Mancha's global production before year-end.

Management considers that the mining envisaged in the Phase 1 feasibility study in no way precludes the possibility of a Phase 2 pit (i.e. a cutback of the existing pit crest) at some point in the future. Mining of a Phase 2 pit would eventually result in higher recovery of the White Foil resource.

VMS EXPLORATION PROJECT

The VMS exploration program started at Hassai in 2008 rapidly gained considerable attention. Preliminary drill results for the first of six locations where volcanogenic massive sulphides ("VMS") have been identified on the Hassai property indicate a minimum conceptual deposit of 20 million tonnes at 1.3 - 1.5 g Au/t and 1.5% - 2.0% Cu, above which an enriched supergene section was later identified. Best results for the supergene section included 33 m at 5.76 g/t Au and 7.16% Cu from 17 m(1), 12 m at 29.6 g/t Au from 6 m(1) and 29 m at 4.8 g/t Au and 3.43% Cu from 21 m(1).

More attention will be devoted to the VMS program in 2009, starting with analysis of the second of five VMS targets identified at Hassai, the 2-km long Hadal Awatib pit, which has been drilled both from surface and from the floor of the pit. Drill results for the recently-completed 51 reverse-circulation and diamond drill holes should be available by the end of the first quarter of 2009.

Moreover, a drilling program aimed at defining the first inferred VMS resource at the Hassai pit is currently underway. This program consists of 24 holes totalling 12,160 m of drilling. The program will also test the extension of the sulphide lens at depth (-600 m). The results of both programs will be released at the beginning of the second quarter 2009.

Preliminary metallurgical testing is about to begin to estimate recovery for the sulphide ore. Results should be included in the preliminary economic assessment to be completed in the second half of 2009.

The Hassai conceptual estimate of potential tonnage and grade to date is based on insufficient exploration data to define a mineral resource compliant with National Instrument 43-101. It is uncertain whether further exploration will result in the target deposit being delineated as a mineral resource. The estimate is based on the current geological interpretation of the lens with the intersections of copper and gold mineralization from the 12 new holes and 7 previously-drilled holes. The estimate excludes copper and gold values outside the interpreted zones and all lead, zinc and silver values, and does not take into account possible enrichment from the upper part of the lenses. The estimate also excludes dilution and recovery.

(1) All depths are measured from the bottom of the existing pit

CORPORATE EVENTS

Investor Relations Calendar

The Company will be exhibiting at the New York Hard Assets Investment Conference in New York, held on May 11 and 12, 2009, at the New York Marriott Marquis Time Square. Members of the management team will be present at Booth 213.

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 (TSX) under the symbol "LMA". For more information on the Company, visit its website at http://www.lamancha.ca/.

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

This press release contains certain "forward-looking statements", including, but not limited to, the statements regarding the Company's strategic plans, future commercial production and profitability, development and construction of mine and production targets and timetables; statements regarding the progression of Frog's Leg and its capacity to eventually reach the objectives set in its feasibility study; statement regarding the future production level of its quartz line in Sudan and its future potential to generate important cash flows for the mine. 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 licenses, risks of delays in construction and production and other risks referred to in La Mancha's 2007 Annual Information Form filed with the Securities Commissions, as well as the Toronto Stock Exchange.



Highlights

(audited)

(All amounts are in CDN dollars Year ended December 31,
unless otherwise noted) 2008 2007
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RESULTS (consolidated,
in thousands of $)
Revenues 53,639 48,456
Cash flow from operating activities 3,284 486
Net earnings (loss) (5,408) (10,806)
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PER SHARE ($)
Net earnings (loss) (0.038) (0.076)
Basic weighted average number of
common shares outstanding (in thousands) 142.0 141.9
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ATTRIBUTABLE GOLD PRODUCTION
Number of ounces produced 71,550(1) 53,900
Mine operating costs (US$ per ounce) 512 485
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December 31, December 31,
2008 2007
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FINANCIAL POSITION (in thousands of $)
Cash and short-term investments 12,204 13,062
Total assets 151,039 131,579
Shareholders' equity 106,777 104,679
Total number of shares outstanding
(in thousands) 142,034 142,007
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GOLD PRODUCTION STATISTICS Year ended December 31,
2008 2007
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Hassai (40%)
Attributable production (ounces) 29,270 34,760
Tonnage milled (t)(0) 809,285 888,620
Grade milled (g Au/t) 4.1 4.1
Recovery rate (%) 69 75
Cash costs (US$ per ounce) 603 481
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ITY (45.9%)(3)
Attributable production (ounces) 24,995 19,140
Tonnage milled (t)(0) 469,580 435,280
Grade milled (g Au/t) 4.4 3.6
Recovery rate (%) 82 79
Cash costs (US$ per ounce) 406 491
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Frog's Leg (51%)(2)
Attributable production (ounces) 15,375
Tonnage milled (t)(0) 312,490
Grade milled (g Au/t) 3.3
Recovery rate (%) 92
Cash costs (US$ per ounce) N/A
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(0) On a 100% basis
(1) Including 1,910 ounces of pre-production following the de-watering
of the White Foil mine
(2) Frog's Leg mine was not in operation in 2007
(3) La Mancha's interest in the Ity mine was reduced from 51% to 45.9 %
upon mine renewal in May 2007

Contact Information

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