European Goldfields Limited
TSX : EGU
AIM : EGU

European Goldfields Limited

August 12, 2005 08:30 ET

European Goldfields Limited: Results for the Second Quarter 2005; Loss Down 80% Vs. Q2 2004-Production at Stratoni Imminent

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - Aug. 12, 2005) - European Goldfields Limited (TSX:EGU)(AIM:EGU) today reported its results for the second quarter to 30 June 2005. Highlights of the quarter are:

Corporate:

- Q2 2005 loss reduced by 80% to $0.72 million ($0.01 per share), from $3.58 million ($0.09 per share) in 2004. Loss for the first six months of 2005 reduced by 62% to $3.38 million ($0.03 per share), from $8.86 million ($0.23 per share) in 2004.

- Self-funded beyond 2006, covering permitting process for major gold & base metals projects in Greece; $50 million in cash and cash equivalent at 30 June 2005; about to generate revenue from Stratoni and sale of Olympias surface concentrates.

Greece:

- 17% increase in reserves at Stratoni; environmental permits awarded for Stratoni & mining plan approved by Technical Committee formed by Greek government; final mining permit expected shortly; production ready to resume following completion of refurbishment work.

- Finalising negotiation of off-take agreement for the sale of existing surface concentrates at Olympias (270,845 tonnes grading +20 g/t gold).

- On track for completion of business plans for major gold & base metals projects; new mining schedules for Olympias completed; SRK in final stages of completing mining options for Skouries.

Romania:

- In-house pre-feasibility study on Certej completed; study confirms optimised pit and ability to produce high grade concentrates (18 to 20 g/t gold and up to 100 g/t silver); focus is now on securing an off-take agreement for the Certej concentrate and examining various opportunities to produce gold dore on site.

- Drilling commenced within the newly acquired Cainel licence; focus is on either defining a stand-alone project or a satellite to "sweeten" the Certej concentrate.

David Reading, CEO of European Goldfields, said:

"European Goldfields has made considerable progress on all of its assets in the last quarter - in Greece, Hellas Gold has made significant progress towards obtaining its final mining permit for Stratoni whilst the in-house pre-feasibility study on Certej in Romania has underpinned the value of the project. With the commencement of production in Greece next month, as well as the expected sale of concentrates following soon after, European Goldfields is now graduating to producer status and remains firmly on track for substantial growth with its major gold & base metals projects of Olympias and Skouries."

UPDATE ON STRATONI MINING PERMIT - EXPECTED SHORTLY

European Goldfields is pleased to announce that, following the award of environmental permits announced on 30 March 2005, a Technical Committee of eminent professors formed by the Greek government has now approved Hellas Gold's mining plan for the Stratoni deposit. The local prefecture has also approved the resumption of mining operations at Stratoni.

The final mining permit is now with the Ministry of Development for final sign-off. The Stratoni mine stands ready to resume production following the recent completion of refurbishment work on the underground infrastructure and plant.

The permitting process in Greece is lengthy; however, Hellas Gold's application for the Stratoni mining permit is following its normal course in accordance with standard legal and political procedures. We are working in close collaboration with the Greek government and our Greek partner, Aktor S.A., to secure the final Stratoni permit in a timely manner.

Management expects the final mining permit for Stratoni to be issued shortly, well within the timeframe provided in Hellas Gold's contract with the Greek State.

GREECE

Stratoni - The Stratoni mine is now ready to resume production following the recent completion of refurbishment work on the underground infrastructure and plant. Production of ore is expected to reach 170,000 tonnes by the end of the first year of full scale production, steadily increasing thereafter.

Based on historical production levels which reached 450,000 tonnes per year on a continuous shift basis, Stratoni is expected to produce consistent grades of 8-10% lead, 8-11% zinc and 200 g/t silver, with concentrator recoveries consistently high at around 90%.

In parallel, a new 1,900-metre access tunnel (or adit) will be developed to provide improved access to the Stratoni reserve and allow larger scale mining operations to be effected by the end of Q2 2006. The new adit is expected to raise mine output with a minimal increase of labour, while removing the necessity to build a large underground maintenance facility. In May 2005, Hellas Gold signed a fixed priced "turn-key" contract with Aktor S.A., European Goldfields' partner in Greece, for the construction of the adit.

The new mining method at Stratoni will result in more efficient and mechanised "cut and fill" operations designed to excavate from the base of the reserve upwards, with fill being placed on the floor.

In addition to existing underground access and tailings facilities, Stratoni already benefits from recently refurbished and fully operational infrastructure such as a mill and flotation plant, offices and a laboratory together with a port loading facility for vessels of up to 8,000 tonnes, all located on the coast at Stratoni. The Stratoni plant is capable of producing 650,000 tonnes ROM per year.

Stratoni concentrates are considered metallurgically 'clean' with little deleterious material. This has ensured that in the past they have been easily sold and attract little by way of penalties. Hellas Gold is currently in negotiation with various potential buyers in order to ensure the most beneficial contract going forward.

In September 2004, two shipments of lead and zinc concentrates of US$3.4 million in value were sold from Stratoni through the refurbished port facility.

The new, more efficient mining method adopted by Hellas Gold at Stratoni has resulted in a 17% increase in reserves which has been reported as follows on 30 June 2005:



--------------------------------------------------------------
Reserve '000t Ag Ag Pb Pb Zn Zn
Category g/t Moz % '000t % '000t
--------------------------------------------------------------
Proven 1,061 191 6.50 8.0 85 10.0 106
--------------------------------------------------------------
Probable 862 189 5.24 8.1 70 11.7 101
--------------------------------------------------------------
Total 1,923 190 11.74 8.1 155 10.8 207
--------------------------------------------------------------


Stratoni has a mine life of six years based on current reserves, but the deposit is open in all directions and there is good potential to expand the resource and reserve base. Hellas Gold intends to initiate an aggressive exploration programme later this year.

The Stratoni mine comprises two deposits that are about 2 km apart, the Mavres Petres deposit to the west and the Madem Lakkos to the east. Both deposits are hosted by marble units. The exploration programme will mainly focus on the areas of high potential between Mavres Petres and Madem Lakkos. The new Stratoni adit is ideally placed to allow the exploration of this prospective area, which remains largely unexplored.

In addition, further exploration potential exists to the west of Mavres Petres where the upper marble horizon is known to continue. Previous exploration drilling (seven holes for 2,008 metres along two lines) 800 metres west of Mavres Petres at the Piavitsa target returned encouraging results, being a zone of massive sulphide mineralisation grading 3 to 14 g/t gold and combined lead and zinc ranging between 1% and 20% over true widths of 2 metres to 7 metres.

Finally, the new adit will provide access to conduct further drilling of the current inferred resources in order to upgrade these to measured and indicated resources and allow them to be converted into additional reserves.

Olympias & Skouries - Hellas Gold is on schedule for completion of all studies related to producing new business plans for its major gold & base metals projects of Olympias and Skouries. Hellas Gold intends 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.

Olympias - The Olympias deposit is located 8 km north of the Stratoni mine. Olympias is a polymetallic deposit containing 14 Mt proven & probable reserves grading 8.6 g/t gold, 120 g/t silver, 3.9% lead and 5.2% zinc. Olympias benefits from extensive mining and plant infrastructure already in place, and a port facility nearby at Stratoni.

European Goldfields is finalising negotiations of an off-take agreement with a major gold producer for the sale of existing surface concentrates at Olympias, representing 270,845 tonnes grading +20 g/t gold.

Also, new mining schedules for Olympias have now been completed. The mining of the Olympias deposit will be undertaken in various phases commencing with the processing of surface tailings followed by exploitation of the Eastern zone and then finally an expansion of the underground infrastructure in order to increase production capacity. Initially, a surface tailings stockpile of 2.4 Mt grading 3.4 g/t gold will be re-concentrated over a three-year period followed by mining of the high grade, Eastern deposit (1.3 Mt grading 16 g/t gold, 13% lead plus zinc and 191 g/t silver) at a rate of 400,000 tonnes per annum, and finally expansion of the mine to a rate of 750,000 tonnes of ROM per year to exploit the total reserve. In-house studies are currently in progress to define the optimum capital mining investment for long-term expansion of the production levels at Olympias.

Hellas Gold and European Goldfields have commissioned Outokumpu and Aker Kvaerner to undertake metallurgical studies to define viable process options for the Olympias deposit. This work will be completed later this year when a decision will be made regarding the preferred option to be taken to produce an updated feasibility study. Cognizance has been taken of the historical issues relating to previous feasibility studies and permitting. Concerted and focused efforts have been made to engage all potential stakeholders and interested parties in the decision process.

In addition to the mining and metallurgical work, studies are also in progress involving Greek consultants and Hellas Gold personnel in order to define the best site for tailings management facilities and to complete the environmental base line studies. A centralised processing and tailings facility is preferred involving both the Stratoni and Olympias projects. An effort will be made in the current studies to minimise surface rock waste and tailings by utilising underground fill methods. The environmental base line and tailings studies are currently in progress.

Skouries - The Skouries deposit is a typical gold-copper porphyry deposit which forms a near vertical pipe and is located 17 km southwest of Olympias. Skouries is located on a high plateau with no habitation in the immediate vicinity and has both potential for open pit and subsequent underground exploitation. Skouries has 130 Mt probable reserves grading 0.9 g/t gold and 0.6% copper.

Due to their extensive historical knowledge of the project, Steffen, Robertson and Kirsten (SRK) have been retained to advise and assist European Goldfields and Hellas Gold on completion of mining options for the Skouries project, which are in the final stages of completion.

SRK have undertaken a comprehensive review of all previous feasibility work, and financial scoping models have been outlined for various mining scenarios based on the current resources. This work has indicated that the most appropriate mining solution would include a combination of open pit and underground methods to optimise the production rates and allow maximum flexibility for more selective exploitation. The SRK study will also investigate options for backfill of mining excavations with rock waste and, where appropriate, tailings in order to minimise surface land use.

The Skouries plant facility will generate saleable gold and copper/gold concentrates and its capacity is the subject of new investigations by Aker Kvaerner aimed at updating the capital and operating costs of an appropriately sized process plant in order to dovetail with the mining production plan.

Additional technical studies on the Skouries deposit will focus on updating the environmental baseline work within the project area and determining the appropriate site for the tailings management facility. This work is being undertaken by Greek consultancy groups (ADK and Enveco SA) in collaboration with Hellas Gold personnel.

Finally, further metallurgical test work on oxide material from sample rejects of previous diamond cores at Skouries confirms the copper and gold recoveries outlined in the original Aker Kvaerner feasibility study. For instance, gold recovery is expected to be over 80% after the first year of production with the gravity and flotation circuits that will be used.

ROMANIA

Certej - In July 2005, European Goldfields announced that it had completed an in-house pre-feasibility study on its 80%-owned Certej project in the Southern Apuseni Mountains of Romania. All the technical and financial components of a full pre-feasibility study have now been successfully completed. The study has resulted in:

- Confirmation that a concentrate can be produced with high grades of 18 to 20 g/t gold and up to 100 g/t silver

- An optimised open pit with low strip ratios

- The definition of sites for infrastructure and tailings disposal

- A clear understanding of all work required to complete an environmental impact assessment and achieve all necessary permitting.

The initial indications from the financial evaluation work show that the project would support the necessary capital investment at realistic, long-term metal prices for gold and silver, assuming a sustainable market can be established for the sale of concentrates.

A flotation testwork programme has confirmed that a gold bearing pyrite concentrate can be produced with high grades of 18 to 20 g/t gold and up to 100 g/t silver. It is envisaged that the project could mine and process 2.5 Mt per annum over approximately nine years. At the proposed production rates, this would yield approximately 225,000 tonnes of concentrate per year with a gold recovery of about 87.5%. More recent metallurgical studies have highlighted that the concentrate produced in the early years of mining from the open pit will grade over 25 g/t gold and up to 150 g/t silver with gold recovery in excess of 90%. Additional metallurgical studies are in progress to endorse the current assumptions and provide further details in order to optimise process design.

The pre-feasibility study on Certej will be published as soon as current resources can be converted into economic reserves, which is contingent on identifying a long-term market for the high grade, gold / silver flotation concentrate to be produced at Certej.

European Goldfields continues to develop the metallurgical testwork programme which is directed at improving the Certej concentrate quality while maintaining high gold recovery, as well as conducting focused exploration programmes to expand the resource base. The metallurgical work is also investigating the feasibility of producing gold dore on site by a cost effective process design. An internal marketing study to explore potential buyers for the Certej concentrate is also in progress. The objective is to accomplish all of this work within the next six months. Completion of a full feasibility study will require an environmental impact assessment and more detailed engineering design.

Ongoing exploration - Exploration work in Romania is now focused on defining higher grade (+2.5 g/t gold) satellites within a 10 km radius of Certej which when concentrated can sweeten the Certej material. As part of this strategy, drilling has commenced in July 2005 on the principal target within the newly acquired Cainel license. Surface and underground sampling of accessible areas has returned grades of 1.0 to 5.6 g/t gold over widths of 1 to 14 metres confirming the north - south veins and mineralized breccias. Unfortunately, access to sample the main mineralised system has not been possible due to the partial collapse of old underground workings and thick surface colluvium. Historical data obtained from the Romanian state exploration was restricted to vein sampling only but obtained encouraging intercepts of 1 to 398 g/t gold over one metre widths. Plans of historic workings indicate that the strike of the system is 1 km and the main vein and splays in the Cainel zone occur over a width of some 100 metres with a secondary splay to the east covering a 200 metre width. This target area will be assessed by a reconnaissance drilling programme.

The drill programme comprises 20 holes for 2,310 metres of drilling (860 metres diamond core and 1,450 metres reverse circulation). The programme will test the continuity of the main vein system, secondary splays and associated wallrock mineralisation along some 700 metres of strike with four, east - west drill fences.

CORPORATE

With the recent recruitment of Neil Hepworth from Rio Tinto (Neves Corvo Mine in Portugal), we have now completed our technical teams in Romania and Greece. 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.

Resource & Reserve Parameters

Patrick Forward, General Manager, Exploration of European Goldfields, was the Qualified Person responsible for reviewing this news release.

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

The quantity and grade of the Piavitsa target are conceptual in nature, there has been insufficient exploration yet to define a mineral resource on the property and it is uncertain if further exploration will result in discovery of a mineral resource on the property.

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- AND SIX-MONTH PERIODS ENDED 30 JUNE 2005

The following discussion and analysis, prepared as at 12 August 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- and six-month periods ended 30 June 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 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 - The Company holds a 65% interest 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- and six-month periods ended 30 June 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 2005 2004 2004 2004 2004 2003 2003
except per Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3
share amounts) $ $ $ $ $ $ $ $
---------------------------------------------------------------------
Statement of
loss and
deficit
Sales 57 - - - - - - -
Interest
income 326 326 279 143 60 18 28 16
Expenses 2,230 3,831 9,225 2,854 2,848 5,042 1,715 293
Loss 723 2,652 8,134 2,190 3,580 5,279 1,687 277
Loss per
share 0.01 0.02 0.17 0.05 0.09 0.18 0.08 0.01
Balance sheet
Working
capital 49,544 57,285 63,480 29,045 31,117 14,413 5,058 5,433
Total
assets 298,948 300,689 304,758 86,879 83,517 67,875 45,943 29,929
Non current
liabilities 71,056 71,179 71,320 - - - - -
Statement of
cash flows
Deferred
exploration
and
development
costs -
Romania 893 860 2,462 1,171 943 1,394 1,097 1,088
Deferred
development
costs -
Greece 891 - - - - - - -
Plant and
equipment -
Greece 2,453 1,582 - - - - - -
---------------------------------------------------------------------


The breakdown of deferred exploration and development costs per mineral property for the three- and six-month periods ended 30 June 2005 and 2004 is as follows:



Six-month periods Three-month periods
ended 30 June ended 30 June

-------------------------- -------------------------
(in thousands of 2005 2004 2005 2004
US dollars) $ (%) $ (%) $ (%) $ (%)
---------------------------------------------------------------------
Romanian mineral properties
Certej 1,280 (73%) 1,964 (84%) 595 (67%) 780 (83%)
Cainel 343 (20%) - (-%) 241 (27%) - (-%)
Zlatna - (-%) 264 (11%) - (-%) 124 (13%)
Voia 27 (1%) 81 (4%) 12 (1%) 36 (4%)
Baita-Craciunesti 74 (4%) 27 (1%) 34 (4%) 1 (0%)
Bolcana 28 (2%) 1 (0%) 11 (1%) 2 (0%)
---------------------------------------------------------------------
1,752 (100%) 2,337 (100%) 893 (100%) 943 (100%)
---------------------------------------------------------------------
Greek mineral properties
Stratoni 256 (29%) - (-%) 256 (29%) - (-%)
Skouries 402 (45%) - (-%) 402 (45%) - (-%)
Olympias 233 (26%) - (-%) 233 (26%) - (-%)
---------------------------------------------------------------------
891 (100%) - (-%) 891 (100%) - (-%)
---------------------------------------------------------------------
Total 2,643 (100%) 2,337 (100%) 1,784 (100%) 943 (100%)
---------------------------------------------------------------------


The Company incurred a loss of $3.38 million ($0.03 per share) for the six-month period ended 30 June 2005, compared to $8.86 million ($0.23 per share) for the same period of 2004. The Company incurred a loss of $0.72 million ($0.01 per share) for the three-month period ended 30 June 2005, compared to $3.58 million ($0.09 per share) for the same period of 2004. The following factors have contributed to this reduction in loss:

- The Company recorded revenues of $0.06 million in the first half of 2005 and Q2 2005 for the sale of surface concentrates by Hellas Gold, compared to $Nil for the same periods of 2004.

- The Company's corporate administrative and overhead expenses have decreased from $3.18 million in the first half of 2004 and $1.96 million in Q2 2004, to $1.58 million and $0.70 million, respectively, for the same periods of 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 the first half of 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 the same period of 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 30 June 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 $2.95 million in the first half of 2005 and $1.39 million in Q2 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 $1.02 million and $0.77 million, respectively, for the same periods of 2004.

- Effective 1 October 2004, the Company changed its functional currency from the Canadian dollar to the United States dollar. Nevertheless, during the first half of 2005, the Company retained significant cash balances in Euro in order to meet a Euro subscription obligation in Hellas Gold in Q1 2005. Hellas Gold also retained significant cash balances in Euro in order to meet operating, general and administrative expenses. Consequently, the Company recorded a foreign exchange loss of $0.93 million in the first half of 2005 and a small gain of $0.07 million in Q2 2005. The loss resulted from a strengthening of the United States dollar against the Euro as at 31 March 2005 compared to 31 December 2004. The Company realised a foreign exchange gain of $0.54 million in the first half of 2004 and $0.07 million in Q2 2004, mainly due to the weakening of the Canadian dollar against the Euro as at 30 June 2004 compared to 31 December 2003.

- The Company's amortisation expense has increased to $0.33 million in the first half of 2005 and $0.08 million in Q2 2005, from $Nil for the same periods of 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 the first half of 2004 and $Nil in Q2 2004, compared to $Nil for the same periods of 2005.

- The Company recorded a non-cash stock-based compensation expense of $0.32 million in the first half of 2005 and $0.20 million in Q2 2005, compared to $4.12 million and $0.96 million, respectively, for the same periods of 2004. Such decrease reflects the fact that no share options or milestone shares were granted in the first half of 2005 compared to significant grants to newly hired employees in the same period of 2004.

- The Company recorded a credit for future income taxes of $1.77 million in the first half of 2005 and $1.06 million in Q2 2005, compared to a debit of $0.03 million for the same periods of 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 $0.62 million in the first half of 2005 and $0.33 million in Q2 2005, from $0.08 million and $0.06 million, respectively, for the same periods of 2004, primarily as a result of the Company holding significantly higher cash balances in the first half of 2005 following completion of private placements during 2004.

Liquidity and capital resources

As at 30 June 2005, the Company had cash and cash equivalents of $49.98 million, compared to $65.25 million as at 31 December 2004 and $30.89 million as at 30 June 2004.

As at 30 June 2005, the Company had working capital of $49.54 million, compared to $63.48 million as at 31 December 2004 and $31.12 million as at 30 June 2004.

The increase in cash and cash equivalents as at 30 June 2005, compared to the balances as at 30 June 2004, resulted primarily from one private placements ($76.73 million), the effects of foreign currency translation on cash ($1.10 million), the exercise of warrants and options ($1.31 million), interest earned ($1.10 million), a net increase in accounts payable vs. accounts receivable ($1.10 million) and the redemption of short-term investments ($0.08 million), offset by the payment of the cash portion of the acquisition price for an additional 35% interest in Hellas Gold ($36.67 million), operating losses ($10.60 million), deferred exploration and development costs in Romania ($5.39 million), capital raising costs ($4.38 million), capital expenditure in Greece ($4.04 million), purchase of equipment ($0.30 million) and development costs in Greece ($0.90 million).

The decrease in cash and cash equivalents as at 30 June 2005, compared to the balances as at 31 December 2004, resulted primarily from operating losses ($4.48 million), capital expenditure in Greece ($4.04 million), the effects of foreign currency translation on cash ($3.51 million), deferred exploration and development costs in Romania ($1.75 million), a net increase in accounts receivable vs. accounts payable ($1.34 million), development costs in Greece ($0.90 million), purchase of equipment ($0.08 million) and capital raising costs ($0.01 million), partly offset by interest earned ($0.65 million) and the exercise of options ($0.17 million).

During the six-month period ended 30 June 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:



(in thousands of US dollars) Payments due by period
---------------------------------------------------------------------
Contractual Less than 1 - 3 4 - 5 After
obligations Total 1 year years years 5 years
---------------------------------------------------------------------
Operating lease
(London office) 994 61 373 373 187
Exploration licence
spending commitments
(Voia, Romania) 1,490 - 1,490 - -
---------------------------------------------------------------------
Total contractual
obligations 2,484 61 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 $2.12 million for the remainder of 2005) and its planned expenditures on its mineral properties (estimated at $2.81 million for Romania and at $4.20 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: 3,167,500
Restricted Share Units: Nil
-----------
Common shares (fully-diluted): 115,341,208


Outlook

Greece - On 30 March 2005, European Goldfields announced that Hellas Gold has been awarded by the Greek state all environmental permits for mining operations at the Stratoni deposit. Following normal procedure, a Technical Committee formed by the Greek government has now approved Hellas Gold's mining plan for the Stratoni deposit. Final approval to commence mining operations is expected shortly. The Stratoni mine is now ready to resume production following the recent completion of refurbishment work on the underground infrastructure and plant. Production of ore is expected to reach 170,000 tonnes by the end of the first year of full scale production, steadily increasing thereafter.

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 metals projects of Olympias and Skouries. The Company intends to submit 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.

The Company will also continue to look for new discoveries through focused exploration programmes.

Romania - In July 2005, the Company completed an in-house pre-feasibility study on its 80%-owned Certej project. The study confirms that a concentrate can be produced with high grades of 18 to 20 g/t gold and up to 100 g/t silver. The initial indications from the financial evaluation work show that the project could support the necessary capital investment at realistic, long-term metal prices for gold and silver, assuming a sustainable market can be established for the sale of concentrates.

The Company continues to develop the metallurgical testwork programme which is directed at improving the Certej concentrate quality while maintaining high gold recovery, as well as conducting focused exploration programmes to expand the resource base. The metallurgical work is also investigating the feasibility of producing gold dore on site by a cost effective process design. An internal marketing study to explore potential buyers for the Certej concentrate is also in progress. The objective is to accomplish all of this work within the next six months. Completion of a full feasibility study will require an environmental impact assessment and more detailed engineering design.

The Company commenced drilling within its newly acquired Cainel licence, which covers an area of 31.3 km2 and is located contiguous with the Certej property. Exploration work is focused on either defining a stand-alone project or a satellite to "sweeten" the Certej concentrate.

Balkans - 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
    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)
    or
    The Sherbourne Group
    Forbes West
    (416) 203 2200 (Office)
    forbes@sherbournegroup.ca