Desert Sun Mining Corp.

Desert Sun Mining Corp.

August 11, 2005 15:30 ET

Desert Sun Presents Second Quarter 2005 Results

TORONTO, ONTARIO--(CCNMatthews - Aug. 11, 2005) - DESERT SUN MINING CORP. (TSX:DSM)(AMEX:DEZ) reports financial and operating results for the six months ended June 30, 2005.

Desert Sun's principal asset, the Jacobina Gold Mine and associated 155-kilometre long Bahia Gold Belt property, is located in the State of Bahia in northeastern Brazil. The Jacobina Mine was commissioned in the first quarter of 2005 and commercial production has been declared effective July 1, 2005. The Company expects to produce at 80% of capacity in the third quarter, reaching its full rate of production of 100,000 ounces per annum by the end of the third quarter of 2005.

The development of the Jacobina Mine, including underground operations at the Joao Belo mine, refurbishment of the mill facilities, all capital equipment and vehicles, as well as the net costs of operation between the time of commissioning and June 2005, amounted to $47 million (US$37 million). This compares well with the estimate at the time of the original 2003 feasibility study of US$34 million. The Jacobina Mine produced a total of 11,935 ounces from the first gold pour at the end of March 2005 to June 30, 2005. Of this total, 9,889 ounces were sold during the quarter at an average net sale price of US$427 per ounce. Proceeds from the sale of gold ounces from the Jacobina Mine of US$4.2 million, less attributable costs of production, were credited against mine development costs.

During the second quarter of 2005, the mill processed 210,400 tonnes with an average grade of 2.16 g Au/t resulting in the production of 11,873 ounces of gold. For the month of June, the mill processed 80,618 tonnes with an average grade of 2.30 g Au/t and produced 5,805 ounces of gold. The metallurgical recovery rate for June was 95.2%. Total production for 2005 is forecast at 55,000 to 60,000 ounces, including production in the development phase as mentioned above. Annual average head grade is projected to be 2.1 g Au/t with an average recovery rate expected at the plant of 96.5%. It is not anticipated that cash costs, once at full production, will vary significantly from the forecasted US$200 per ounce adjusted for the strengthening of the Brazilian Real, which is expected to add US$30 to US$40 per ounce. The Jacobina Mine operating cost structure reflects an exposure of approximately 25% US$ based and 75% R$ based costs. Cash costs in the third quarter will also be impacted as expected, until full production has been reached at the end of the third quarter.

On a consolidated basis, Desert Sun recorded a net loss from operations of $4.6 million in the three months ended June 30, 2005, or 6 cents per share; compared with $1.7 million (or 2 cents per share) in the three months ended March 31, 2005. Upon approval of Desert Sun's new Stock Option Plan by shareholders on April 20, 2005, 2.4 million options to purchase common shares granted since September 2004, including the 1.1 million options granted in 2005, were deemed to have been issued and $2.4 million was charged to operations as stock-based compensation in the current period. Additional stock-based compensation of $1.4 million was recognized during the period on the grant of 1,525,000 million common shares to directors, officers and consultants under the new Share Compensation Plan approved by shareholders of April 20, 2005. Of the common shares granted, 508,333 shares were issued, with the remaining two thirds to be issued on the first and second anniversaries of the original grants respectively.

Significant operating expenses were as follows:

Management and administrative services: $281,000, compared with $771,000 in the three months ended March 31, 2005 that included bonuses paid upon the achievement of significant milestones of $495,000. Management costs have now reached a relatively stable level, and ongoing management consulting and administration fees of approximately $300,000 per quarter can be expected.

Investor relations and shareholders' information: $181,000, compared with $127,000 in the three months ended March 31, 2005. Significant activities during the period included the Annual Report and Annual and Special Meeting of Shareholders, marketing presentations and attendance at trade shows.

Travel and entertainment: $135,000, a significant increase from the $74,000 incurred in the three months ended March 31, 2005 as a result of visits by management to London and mainland Europe, Brazil and the USA. The travel and entertainment costs relate principally to the investor relations and marketing activities of management.

Office and miscellaneous: $161,000, compared with $99,000 in the first quarter of 2005. Desert Sun shares office space and administrative services with certain other public companies. The Company is reimbursed by these other companies for their proportionate share (generally 80%) of all common expenses such as office rental, telephone, computer maintenance and office supplies.

Total acquisition, exploration and development expenditures in the three months ended June 30, 2005 were $7.8 million, compared with $9.4 million in the three months ended March 31, 2005. This expenditure included $12.6 million (net) on development at the Jacobina Mine, establishment of an Asset Retirement provision in the amount of $1.5 million, $1.1 million at the early stage exploration projects at Pindobacu and along the Bahia Gold Belt, and $0.9 million, $0.6 million and $0.3 million at the advanced stage projects Morro do Vento Extension (Basal and Main reefs), Canavieiras and Morro do Vento respectively.

An internal review and evaluation of the Company's development projects was completed in January 2005, with Morro do Vento identified as the next project most likely to be developed. The pre-feasibility study for Morro do Vento, located 0.5 km from the processing plant, was completed in August 2005 and confirmed the economic viability of developing the Morro do Vento Mine. Micon International Limited of Toronto completed the review of mineral resources; AMEC Americas Limited of Vancouver completed a review of the mill expansion and Devpro Mining Inc. of Sudbury, in conjunction with Desert Sun staff, completed the mine plan and mineral reserve estimate. All environmental reports that are required to initiate work at Morro do Vento have been submitted to the Brazilian environmental review agency, Centro de Recursos Ambientais (CRA). Development and mining of the Morro do Vento area can be carried out under the existing Jacobina environmental licence.

The Morro do Vento Mine will be the second production area at Jacobina and will add an additional 50,000 ounces per year bringing overall production to 150,000 ounces per year in 2007. The mining method and equipment will be similar to that currently used at the Jacobina Mine operations. The throughput of the processing plant will need to be expanded from 4,200 tonnes per day to 6,500 tonnes per day to accommodate the additional ore. The Company has started work on the access portal and power line, and the mining equipment is being ordered. A strong mine development team is being assembled that will oversee all work on the project.

The total indicated mineral resources at Morro do Vento are estimated to be 5,790,000 tonnes grading 2.18 g Au/t, containing 406,000 ounces of gold using a conventional polygonal method. Inferred mineral resources are estimated to be 2,470,000 tonnes grading 2.42 g Au/t, containing 192,000 ounces of gold. The pre-feasibility study considered the indicated mineral resources above the 800 Level only, which resources total 5,018,000 tonnes grading 2.08 g Au/t, containing 335,000 ounces of gold. Probable mineral reserves at US$350 per ounce gold price are estimated to be 3,586,000 tonnes at 2.09 g Au/t containing 241,000 ounces of gold. There is excellent potential to both upgrade and expand mineral resources below the 800 Level.

Total capital cost is estimated to be US$31.2 million for the project. Gold produced from capital development in ore, amounts to US$14 million making the total new capital requirements for the project of US$17.2 million. The underground mine sustaining capital has been estimated to be US$5.8 million, to primarily be incurred in the years 2007 and 2008 for equipment rebuilds and ongoing mine development.

With $15.9 million cash on hand at June 30, 2005, $2.9 million received from the exercise of warrants and broker warrants in July 2005, and positive cash flow from operations projected to start in the third quarter, Desert Sun has the financial resources to maintain its exploration program, fund administration and working capital requirements and move forward with the Morro do Vento project. Work on alternative financing strategies, including Brazilian and international project finance facilities, to fund completion of the Morro do Vento project as well as the development of additional mining areas over the next three to four years, is at an advanced stage.

Desert Sun Mining is a Canadian gold mining company listed on the Toronto Stock Exchange and the American Stock Exchange with 100% ownership of the Jacobina Mine and the 155 km long Bahia Gold Belt in the state of Bahia, in northeastern Brazil. Proven and Probable mineral reserves in the Jacobina Mine area are now 17,620,000 tonnes at 2.11 g Au/t containing 1,200,000 ounces of gold. This includes the addition of reserves from the Morro do Vento project. As a result of the Desert Sun's exploration programs to date, Measured and Indicated resources total 24,800,000 tonnes at 2.53 g Au/t containing 2,050,000 ounces of gold, and Inferred Resources total 22,200,000 tonnes at 2.61 g Au/t containing 1,900,000 ounces of gold. The mineral reserves are included within the Measured and Indicated mineral resources. For additional information, contact Naomi Nemeth, Vice President Investor Relations at 416-861-5901 ( or visit Desert Sun's website at

Statements in this release that are not historical facts are "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Readers are cautioned that any such statements are not guarantees of future performance and that actual developments or results may vary materially from those in these "forward-looking statements". This news release also uses the terms "measured resources", 'indicated resources' and 'inferred resources'. Desert Sun Mining Corp. advises investors that although these terms are recognized and required by Canadian regulations (under National Instrument 43-101 Standards of Disclosure for Mineral Projects), the U.S. Securities and Exchange Commission does not recognize them. Investors are cautioned not to assume that any part or all of the mineral deposits in these categories will ever be converted into reserves. In addition, 'inferred resources' have a great amount of uncertainty as to their existence, and economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred Mineral Resources may not form the basis of feasibility or pre-feasibility studies, or economic studies except for Preliminary Assessment as defined under 43-101. Investors are cautioned not to assume that part or all of an inferred resource exists, or is economically or legally mineable.

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