European Goldfields Limited
TSX : EGU
AIM : EGU

European Goldfields Limited

November 14, 2005 08:00 ET

European Goldfields-Results for the Third Quarter 2005

WHITEHORSE, YUKON--(CCNMatthews - Nov. 14, 2005) -

PRODUCTION COMMENCES AT STRATONI - OFF-TAKE AGREEMENTS SIGNED

European Goldfields Limited (TSX:EGU)(AIM:EGU) today reported its results for the third quarter to 30 September 2005. Highlights of the quarter are:

- Hellas Gold awarded all necessary permits to commence mining at Stratoni.

- Stratoni mill commenced production of concentrates in September 2005; underground mining started in October.

- Work under way on new Stratoni decline, leading to production ramp-up next year.

- Signed long-term off-take agreements for Stratoni concentrates, to generate US$114 million in revenue at current metal prices; first shipment from Stratoni port expected end November 2005.

- On track to submit business plans with the Greek State in January 2006, applying for permits to develop major gold & base metals projects of Olympias and Skouries.

- Finalised metallurgical studies confirming concentrate grades for Certej pre-feasibility study; reviewing development options to progress project; commissioned environmental study to apply for mining permit; finalising work to upgrade resources to reserves.

- $43 million in cash assets and financial instruments at 30 September 2005.

Commenting on the results, David Reading, Chief Executive Officer of European Goldfields, said: "We have achieved a major milestone in commencing production at Stratoni in September and we are well on track to developing our other major gold and base metals projects in Greece. In Romania, we are encouraged by the results of our in-house pre-feasibility study underpinning the value of the project, and we are actively pursuing opportunities to develop the project further. "

STRATONI - GREECE

Mining permit awarded - In September 2005, European Goldfields' 65%-owned subsidiary, Hellas Gold S.A., was awarded by the Greek State all necessary environmental and mining permits to commence mining operations at the Stratoni deposit in Northern Greece. The total proven and probable reserve at Stratoni is 1.923Mt grading 10.8% zinc, 8.1% lead and 190 g/t silver.

Stratoni mill producing - The Stratoni mill commenced production of lead/silver & zinc concentrates in September 2005. To date, the mill has treated 14,800 dry tonnes of ore with recoveries in excess of 90% lead, zinc and silver to the respective concentrates, once operations had stabilised after the start-up in production.

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

Underground mining started - New production from underground mining started in October 2005. Production faces have been made available through the recent refurbishment of the Stratoni mine and new backfill plants have been commissioned to open up additional production areas and also for backfilling the old workings. Production of ore over the current life of mine is expected to reach the following volumes of ROM:



- Year 1: 170,000 tonnes
- Year 2: 250,000 tonnes
- Year 3: 300,000 tonnes
- Year 4: 375,000 tonnes
- Year 5: 400,000 tonnes
- Year 6: 400,000 tonnes


Work on new decline under way - Work on a new 1,900 metre access tunnel (or decline) at Stratoni has now commenced. The decline is being developed to provide improved access to the Stratoni reserve and allow larger scale mining operations to be effected by the end of Q4 2006. The new decline is expected to raise mine output with a minimal increase of labour, while removing the necessity to build a large underground maintenance facility.

The new decline will also provide access to conduct further drilling to find new resources and to upgrade the current inferred resources into additional reserves.

Sale of lead/silver & zinc concentrates - Hellas Gold commenced production in an environment of strong metal demand and depleting global stockpiles, especially for zinc; Stratoni is the only lead & zinc start-up in 2005.

In November 2005, Hellas Gold entered into off-take agreements with Trafigura Beheer B.V., Euromin S.A. and MDIL (UK) Ltd for the sale of lead/silver & zinc concentrates produced at Stratoni. Under the off-take agreements, Hellas Gold has agreed to sell concentrates representing approximately 90% of all projected production for 2005, 2006 and 2007, and 65% of lead/silver and 25% of zinc production in 2008. The agreements provide for fixed penalties and treatment charges for the contract term. Hellas Gold intends to sell any excess production on the spot market.

At current metal prices, the off-take agreements are expected to generate US$114 million in total gross revenue by the end of 2008. The final net income will take into account operating costs, capital depreciation and Hellas Gold's environmental commitments.

The first shipment of concentrates is expected by the end of November 2005, carried by vessels loaded at Hellas Gold's refurbished Stratoni port.

Refurbished infrastructure and port facility - 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 capacity, all located on the coast at Stratoni.

Exploration upside - 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, with drilling expected to start in Q1 2006.

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 decline 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, 58 to 198 g/t silver and combined lead & zinc ranging between 1% and 20% over true widths of 2 metres to 7 metres.

OLYMPIAS & SKOURIES - GREECE

Hellas Gold is on track to submit new business plans with the Greek State in January 2006, applying for environmental and mining permits to develop its major gold & base metals projects of Olympias and Skouries. 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 and 2 km west of the Aegean Sea. 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.

New mining schedules for Olympias have now been completed. Development at Olympias is expected to progress in various phases, commencing with the sale of existing surface concentrates (representing 270,845 tonnes grading +20 g/t gold) and small scale exploitation of the higher grade Eastern and Upper West zones over a three-year period, followed by the processing of surface tailings (2.4 Mt grading 3.4 g/t gold) and the expansion of the underground infrastructure in order to increase production to 750,000 - 1 million tonnes per year to exploit the total reserve.

Hellas Gold has commissioned Outokumpu and Aker Kvaerner to undertake metallurgical studies to define viable process options for the Olympias deposit. Aker Kvaerner has completed a pre-feasibility level study on treating the gold bearing, refractory, pyrite concentrate utilising a process route comprising flotation, roasting, autoclaving and leaching which was based on previous testwork and studies. The Outokumpu study is progressing according to plan and completion is expected in Q4 2005. Hazen Research have also been commissioned to carry out confirmatory proving test work which is scheduled for completion early in 2006. The economic parameters from the various studies and options are being included into in-house generated economic models which are being continuously refined as more data becomes available. On completion, a decision will be made regarding the preferred option which will be taken to produce a business plan in January 2006 and an updated feasibility study.

Cognizance is being taken of the historical issues relating to previous feasibility studies and permitting. Concerted and focused efforts are being 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. 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 assist on the completion of mining options for the Skouries project. SRK's work has concluded that the most appropriate mining solution would include a combination of open pit and sub-level caving to optimise the production rates, expected to reach 8 million tonnes of ROM per year, and allow maximum flexibility for more selective exploitation. The results of the SRK and associated studies are being included into the in-house generated economic model to confirm these findings.

A Golder Associates study is also investigating options for backfill of mining excavations with rock waste and, where appropriate, tailings in order to minimise surface land use.

The Skouries plant facility is expected to generate saleable gold dore and copper/gold concentrates. The plant capacity has been the subject of a study completed by Aker Kvaerner which updated the capital and operating costs spanning the various throughputs of the process facility to dovetail with the mining production plans being developed.

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

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

ROMANIA

Certej - In July 2005, European Goldfields 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

- 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.

European Goldfields is finalising its metallurgical studies, which confirm that a gold bearing pyrite concentrate can be produced with grades averaging 22 g/t gold and +150 g/t silver. These studies have also highlighted that the concentrate produced in the early years of mining from the open pit will have a grade approaching 30 g/t gold and up to 500 g/t silver with a gold recovery in excess of 90%.

It is envisaged that the project could mine and process 2.5 Mt to 3.0 Mt per year 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%.

European Goldfields is actively reviewing development options to progress the project forward, such as identifying a long-term market for the high grade, gold/silver flotation concentrate to be produced at Certej, or confirming a process route for producing gold dore on site.

European Goldfields is also finalising work to upgrade the current Certej resources into reserves. Finally, European Goldfields recently commissioned an environmental impact assessment, expected in Q2 2006, in order to apply for a mining permit for Certej and complete a full feasibility study.

Ongoing exploration - Further 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. The satellite targets comprise open pitable mineralisation within the Certej licence area and in European Goldfields' adjacent Baita-Craciunesti licence area. In addition, surface dumps are being evaluated for their tonnage grade and metallurgical characteristics.

Resources & Reserves Parameters

Patrick Forward, General Manager, Exploration of European Goldfields, was the Qualified Person under Canadian National Instrument 43-101 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

Certain information included in this document, including any information as to the Company's future financial or operating performance and other statements that express management's expectations or estimates of future performance, constitute "forward-looking statements." The words "expect", "will", "intend", "estimate" and similar expressions identify forward-looking statements. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by management, are inherently subject to significant business, economic and competitive uncertainties and contingencies. The Company cautions the reader that such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual financial results, performance or achievements of the Company to be materially different from its estimated future results, performance or achievements expressed or implied by those forward-looking statements and the forward-looking statements are not guarantees of future performance. These risks, uncertainties and other factors include, but are not limited to: changes in the worldwide price of gold, base metals or certain other commodities (such as fuel and electricity) and currencies; ability to successfully integrate acquired assets; legislative, political or economic developments in the jurisdictions in which the Company carries on business; operating or technical difficulties in connection with mining or development activities; the speculative nature of gold and base metals exploration and development, including the risks of diminishing quantities or grades of reserves; and the risks involved in the exploration, development and mining business. These factors are discussed in greater detail in the Company's Management's Discussion & Analysis for the year ended 31 December 2004 filed on SEDAR at www.sedar.com. The Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

MANAGEMENT'S DISCUSSION & ANALYSIS

FOR THE THREE- AND NINE-MONTH PERIODS ENDED 30 SEPTEMBER 2005

The following discussion and analysis, prepared as at 14 November 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 nine-month periods ended 30 September 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 under the Yukon Business Corporations Act, 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 consist of three deposits within 70-year mining concessions covering a total area of 317 km2. The deposits include the polymetallic projects of Stratoni and Olympias which contain gold, lead, zinc and silver, and the copper-gold porphyry body referred to as Skouries. All three deposits have been well defined with over 200,000 metres of drilling and the completion of feasibility studies and later engineering studies.

These assets represent some of the largest defined deposits in Europe. The three deposits are located within a 10 km radius of each other, making this effectively a gold and base metals centre. Furthermore, both Stratoni and Olympias were previously in production and have extensive existing mining and plant infrastructure and a ship loading facility on the Aegean Sea.

In September 2005, Hellas Gold resumed production at Stratoni following the award by the Greek State of all necessary environmental and mining permits. Production of ore is expected to reach 170,000 tonnes by the end of the first year of full scale production, steadily increasing to 400,000 tonnes per annum by year five.

Hellas Gold is in the process of applying for similar permits for Olympias and Skouries. Hellas Gold's assets also include potential revenue generating stockpiles and tailings located on the surface.

Romania - The Company holds five mineral properties located within the "Golden Quadrilateral" area of Romania through a 80% interest in Deva Gold S.A. and a 100% interest in European Goldfields Deva SRL, which are in the process of exploring their mineral properties and have not yet determined whether those properties contain economic reserves. The Company's primary focus is to advance its 80%-owned Certej deposit. The Company has recently completed an in-house pre-feasibility study underpinning the value of the Certej deposit.

Results of operations

The Company's results of operations for the three- and nine-month periods ended 30 September 2005 were comprised primarily of activities related to the results of operations of the Company's 65%-owned subsidiary Hellas Gold in Greece and the Company's regional exploration programs in Romania. The Company continues to incur losses and until significant 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,
except per
share amounts)
2005 2005 2005 2004 2004 2004 2004 2003
Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4
$ $ $ $ $ $ $ $
---------------------------------------------------------------------
Statement
of loss
and
deficit
Sales - 57 - - - - - -
Interest
income 272 326 326 279 143 60 18 28
Expenses 3,536 2,230 3,831 9,225 2,854 2,848 5,042 1,715
Loss 2,726 723 2,652 8,134 2,190 3,580 5,279 1,687
Loss per
share 0.02 0.01 0.02 0.17 0.05 0.09 0.18 0.08
Balance
sheet
Working
capital 39,171 49,544 57,285 63,480 29,045 31,117 14,413 5,058
Total
assets 295,914 298,948 300,689 304,758 86,879 83,517 67,875 45,943
Non
current
liabilities70,053 71,056 71,179 71,320 - - - -
Statement
of cash
flows
Deferred
exploration
and
development
costs
- Romania 1,068 893 860 2,462 1,171 943 1,394 1,097
Deferred
development
costs
- Greece 439 891 - - - - - -
Plant and
equipment
- Greece 2,506 2,453 1,582 - - - - -
---------------------------------------------------------------------


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



Nine-month periods Three-month periods
ended 30 September ended 30 September
---------------------------------------------
(in thousands of
US dollars) 2005 $ (%) 2004 $ (%) 2005 $ (%) 2004 $ (%)
---------------------------------------------------------------------
Romanian mineral
properties
Certej 1,655 (59%) 2,624 (78%) 379 (35%) 770 (66%)
Cainel 802 (28%) - (-%) 459 (43%) - (-%)
Zlatna - (-%) 250 (7%) - (-%) 2 (-%)
Voia 46 (2%) 108 (3%) 19 (2%) 31 (3%)
Baita-Craciunesti 255 (9%) 382 (11%) 181 (17%) 357 (30%)
Bolcana 59 (2%) 12 (1%) 30 (3%) 11 (1%)
---------------------------------------------------------------------
2,817 (100%) 3,376 (100%) 1,068 (100%) 1,171 (100%)
---------------------------------------------------------------------
Greek mineral
properties
Stratoni 410 (31%) - (- %) 154 (35%) - (- %)
Skouries 569 (43%) - (- %) 167 (38%) - (- %)
Olympias 351 (26%) - (- %) 118 (27%) - (- %)
---------------------------------------------------------------------
1,330 (100%) - (- %) 439 (100%) - (- %)
---------------------------------------------------------------------
Total 4,147 (100%) 3,376 (100%) 1,504 (100%) 1,171 (100%)
---------------------------------------------------------------------


The Company incurred a loss of $6.10 million ($0.05 per share) for the nine-month period ended 30 September 2005, compared to $11.05 million ($0.26 per share) for the same period of 2004. The Company incurred a loss of $2.73 million ($0.02 per share) for the three-month period ended 30 September 2005, compared to $2.19 million ($0.05 per share) for the same period of 2004.

The following factors have contributed to this large reduction in loss for the nine-month period ended 30 September 2005 and small increase in loss for the three-month period ended 30 September 2005, compared to the same periods of 2004:

- The Company recorded revenues of $0.06 million in the first nine months of 2005 and Nil in Q3 2005 for the sale of a stockpile of concentrates by Hellas Gold, compared to $Nil for the same periods of 2004.

- The Company's corporate administrative and overhead expenses have decreased from $4.30 million in the first nine months of 2004 and $1.12 million in Q3 2004, to $2.09 million and $0.50 million, respectively, for the same periods of 2005, primarily as a result of the Company's newly adopted practice of recharging costs and overheads to its operating subsidiaries in 2005. Also, in the first nine months 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 $5.49 million in the first nine months of 2005 and $2.53 million in Q3 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 $0.48 million and $(0.55) million, respectively, for the same periods of 2004. Hellas Gold's operating, general and administrative expenses in the first nine months of 2005 are mostly attributable to costs relating to the start of production at Stratoni in September 2005.

- Effective 1 October 2004, the Company changed its functional currency from the Canadian dollar to the United States dollar. Nevertheless, during the first nine months 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 $0.90 million in the first nine months of 2005 and a small gain of $0.03 million in Q3 2005. The loss resulted from a strengthening of the United States dollar against the Euro as at 30 September 2005 compared to 31 December 2004. The Company realised a foreign exchange loss of $0.76 million in the first nine months of 2004 and $1.30 million in Q3 2004, mainly due to the strengthening of the Canadian dollar against the Euro as at 30 September 2004 compared to 31 December 2003.

- The Company's amortisation expense has increased to $0.42 million in the first nine months of 2005 and $0.08 million in Q3 2005, from $0.02 million and $0.02 million, respectively, 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 nine months of 2004 and $Nil in Q3 2004, compared to $Nil for the same periods of 2005.

- The Company recorded a non-cash stock-based compensation expense of $0.77 million in the first nine months of 2005 and $0.45 million in Q3 2005, compared to $4.54 million and $0.42 million, respectively, for the same periods of 2004. Such decrease in the first nine months of 2005 reflects the fact that fewer share options and no milestone shares were granted in that period compared to the same period of 2004, and that the cost of share options granted in 2005 has been amortised according to the vesting periods of such share options, in contrast with the share option granted in 2004 which, for the most part, did not have vesting periods.

- The Company recorded a credit for future income taxes of $1.31 million in the first nine months of 2005 and a debit of $0.47 million in Q3 2005, compared to a debit of $0.05 million and $0.03 million, respectively, for the same periods of 2004. The credit for the first nine months of 2005 has arisen due to the Company recognising a future tax asset for the losses carried forward in Hellas Gold. The debit for Q3 2005 has arisen due to Hellas Gold capitalising a portion of its costs resulting in a decrease of the future tax asset.

- The Company's interest income has increased to $0.92 million in the first nine months of 2005 and $0.27 million in Q3 2005, from $0.22 million and $0.14 million, respectively, for the same periods of 2004, primarily as a result of the Company holding significantly higher cash balances in the first nine months of 2005 following completion of private placements during 2004.

Liquidity and capital resources

As at 30 September 2005, the Company had cash and cash equivalents of $39.07 million, compared to $65.25 million as at 31 December 2004 and $28.79 million as at 30 September 2004.

As at 30 September 2005, the Company had working capital of $39.17 million, compared to $63.48 million as at 31 December 2004 and $29.05 million as at 30 September 2004.

The increase in cash and cash equivalents as at 30 September 2005, compared to the balances as at 30 September 2004, resulted primarily from one private placement ($76.73 million), the exercise of warrants and options ($1.31 million), interest earned ($1.20 million), a net increase in accounts payable vs. accounts receivable ($0.96 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 ($36.66 million), operating losses ($10.33 million), capital expenditure in Greece ($6.54 million), deferred exploration and development costs in Romania ($5.28 million), capital raising costs ($4.37 million), funds pledged as collateral to guarantee environmental commitments at Stratoni ($3.61 million), the effects of foreign currency translation on cash ($1.47 million), development costs in Greece ($1.33 million) and purchase of equipment ($0.01 million).

The decrease in cash and cash equivalents as at 30 September 2005, compared to the balances as at 31 December 2004, resulted primarily from operating losses ($6.65 million), capital expenditure in Greece ($6.54 million), the effects of foreign currency translation on cash ($4.36 million), funds pledged as collateral to guarantee environmental commitments at Stratoni ($3.61 million), deferred exploration and development costs in Romania ($2.82 million), a net increase in accounts receivable vs. accounts payable ($1.48 million), development costs in Greece ($1.33 million), purchase of equipment ($0.08 million) and capital raising costs ($0.01 million), offset by interest earned ($0.93 million) and the exercise of options ($0.17 million).

During Q3 2005, Hellas Gold pledged $3.61 million (_3 million) to the National Bank of Greece as collateral for a Letter of Guarantee issued by the National Bank of Greece to the Greek Ministry of Development to guarantee Hellas Gold's environmental commitments under its mining permit at Stratoni. The Letter of Guarantee expires on 31 December 2010.

During the nine-month period ended 30 September 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:



Payments due by period
(in thousands of US dollars)
----------------------------------------------------------------------
Contractual obligations Total Less than 1 - 3 4 - 5 After 5
1 year years years years
----------------------------------------------------------------------
Operating lease (London office) 980 187 373 373 47
Exploration licence spending
commitments (Voia, Romania) 1,470 - 1,470 - -
----------------------------------------------------------------------
Total contractual obligations 2,450 187 1,843 373 47
----------------------------------------------------------------------


For the coming year, the Company believes it has adequate funds available to meet its corporate and administrative obligations (estimated at $0.74 million for the remainder of 2005) and its planned expenditures on its mineral properties (estimated at $1.10 million for Romania and at $1.75 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:



Common shares: 112,173,708
Common share options: 4,593,500
Restricted share units: 950,000
-----------
Common shares (fully-diluted): 117,717,208

Preferred shares: Nil


On 14 November 2005, the Company granted 950,000 restricted share units ("RSUs") under the Company's Restricted Share Unit Plan to David Reading (CEO). The RSUs are redeemable for an equal number of common shares of the Company pursuant to the following vesting schedule: 200,000 RSUs on 31 December 2005, 400,000 RSUs on 31 December 2006 and 350,000 RSUs on 31 December 2007. The RSUs vesting in 2005 were issued in recognition of milestones achieved during the year, including the building of a new management and technical team, the commencement of production at Stratoni and the completion of an in-house pre-feasibility at Certej.

Outlook

Greece - In September 2005, Hellas Gold resumed production at Stratoni following the award by the Greek State of all necessary environmental and mining permits. Production of ore is expected to reach 170,000 tonnes by the end of the first year of full scale production, steadily increasing thereafter.

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 new business plans and environmental studies for Olympias and Skouries to the Greek government in January 2006, followed by updated feasibility studies later 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. 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 or a suitable process route for producing gold dore on site can be identified.

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 by Q2 2006. Completion of a full feasibility study will require an environmental impact assessment and more detailed engineering design. Environmental base line study work by Romanian consultant ECOIND is underway.

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 filed on SEDAR at www.sedar.com.

Contact Information

  • European Goldfields
    David Reading
    Chief Executive Officer
    Office: +44 (0)20 7408 9534, Mobile: +44 (0)7703 190 652
    or
    European Goldfields
    David Grannell
    Chief Financial Officer
    Office: +44 (0)20 7408 9534, Mobile: +44 (0)7703 190 652
    info@egoldfields.com
    www.egoldfields.com
    or
    Buchanan Communications
    Bobby Morse / Ben Willey
    Office: +44 (0)20 7466 5000, Mobile: +44 (0)7802 875 227
    bobbym@buchanan.uk.com
    or
    The Sherbourne Group
    Forbes West
    Office: +1 416 203 2200
    forbes@sherbournegroup.ca