Andean American Gold Corp.
TSX VENTURE : AAG
FRANKFURT : AQN

Andean American Gold Corp.

August 03, 2005 16:27 ET

Andean American Mining Corp.: Directors' Report to the Shareholders

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - Aug. 3, 2005) - Andean American Mining Corp. (TSX VENTURE:AAG)

The Board of Directors is pleased to report on the progress of your Company over the past year.

While all progress is measured from very humble beginnings the solid operating performance from the Santa Rosa Mine has translated into a stable base from which to grow your Company.

Today, the Company has a new perspective because:



- We are a low cost, profitable producer
- We trade at a low price/earnings and cash flow multiple
- We are ramping up gold sales
- We have many opportunities for production growth going forward
- We have a potential home run at the Sinchao Property

Your Company has new objectives for the future:

- Continued growth at the Santa Rosa Mine
- Production increases, 200% over next three years
- Mine life expansion
- Harvest inventory

- Prepare Sinchao for a significant decision
- Define geologic potential - exploration program
- Confirm economic model - metallurgical program
- Create "Ready" state with decision quality data

- Grow gold production - Objective 200,000 ounces by 2010
- Acquire additional early production targets
- Finalize on current prospects
- Fast track scoping studies

- Financially viable, strengthened cash position
- Operations develop substantial cash over the next three years
- Eliminate debts
- Develop sources of finance to support growth
- Bankable projects

- Strengthen Organization
- Add additional independent directors
- Add top geologist/president to executive


A review of last year's achievements with the establishment of a profitable, predictable base from which to grow. This single achievement, while slow in coming, has been worth the wait.

The accompanying financial statements show a solid profit for the year, importantly; also continuing growth in production, mine life, cash flow, assets and shareholder's equity.

These results have been achieved with minimal new capital and firmly establish a solid base for future growth at Santa Rosa and beyond. Of particular importance has been the growth in problem solving ability - a key indicator of management competence and organizational resilience.

Not all objectives were achieved; however the benefits of the principal objectives of:



- Improved gold recoveries
- Expanded production facilities
- Lower operating cash costs
- Financial expansion and growth

can be seen in some of the year's statistical comparisons:

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2005 2004 Change
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Ounces produced 17,099 8068 + 111%
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Cash Cost $233/oz $271/oz -14%
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Cash costs after silver credits $219/oz $267/oz -18%
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Earnings per share 4 cents/share Loss
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Cash flow per share 9 cents/share Loss
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Not all objectives were achieved; not all problems were foreseen.

A look back on the past 12 months reveals solid progress, marked by continuous improvement over the previous 9 business quarters. The Company believes success lies on the other side of problems and in that regard dealt with many over the past 12 months. Some of the problems dealt with:



- Shortage of capital caused by dirty carbon
- High cost to hold ph in the nacient chlorurant process development
- not yet solved.
- Shortage of qualified diesel mechanics.
- Changed priorities on the silver precipitate circuit.
- Changing demands from the communities.
- Lack of clear enforcement of the rule of law by most levels of
government


Lowering of non cash costs and adding to mine life did not get the foreseen benefit from the AMEC report on the 2004 drill program. In fact, the report was received in a seriously different context and time frame than originally envisioned. These matters will be addressed in fiscal 2006.

Acquisition of Additional Prospective Ground

The addition to the Sinchao 1, 2 & 3 titles and continuation on our 7 years of patience on the Valle de Sinchao 2 and 4 titles are considered material additions to the Company's land bank. More will follow on this substantial addition in the coming months. The Company is extremely pleased by these recent developments and intends to demonstrate to both shareholders and the markets at large why these were worth waiting for.

Financing Expansion and Growth

Given the stable base of operations and cash flow at Santa Rosa, the Company is now in a position to step forward with substantial new initiatives which are all designed to bring significant value to Andean shareholders. Our new Chief Financial Officer will be instrumental in bringing his years of experience to the benefit of Andean through the formulation of offerings and the development and continuation of relationships in the financial communities and the markets Andean will be able to reach.

Summary

A year of solid progress, increase in value for Andean shareholders. Some disappointments and frustrations but mainly continuous improvement towards our goals.

Andean has a low cost base from which to grow.

Andean is well positioned for dramatic growth with the enhancements at Santa Rosa and the acquisitions at Sinchao.

Andean's management team is maturing and ready for more opportunities

Andean is also active on additional exploration and early production targets.

We wish to thank our shareholders and creditors, who's continuing support make this progress possible. 2006 promises to be a year of growth, development and strong cash flows. Thank you for your continuing support in the growth and development of Andean American Mining Corp.

Andean American, producing, profitable, expanding and exploring.

On behalf of the Board,

John Huguet, Director

This news release may contain forward-looking statements regarding upcoming work programs and events. Actual results may differ materially from those anticipated in such statements.

The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this news release.

Contact Information

  • Andean American Mining Corp.
    John Huguet
    President
    (604) 681-6186 or Toll Free: 1-888-356-4784
    or
    Andean American Mining Corp.
    Hai Van Le
    (604) 681-6186 or Toll Free: 1-888-356-4784
    www.andeanamerican.com