European Minerals Corporation
TSX : EPM
AIM : EUM

European Minerals Corporation

April 03, 2007 02:00 ET

European Minerals Corporation: Results

LONDON, UNITED KINGDOM--(CCNMatthews - April 3, 2007) -

Not for Distribution to U.S. Newswire Services or for Distribution in the United States

European Minerals Corporation ("EMC" or the "Company") (TSX:EPM) (AIM:EUM) an international mineral exploration and development company focused on identifying, acquiring and developing resource projects, today reports its results for the twelve months ended December 31, 2006. All amounts are expressed in US dollars unless otherwise indicated.

HIGHLIGHTS

Financial

- The Company's focus continued to be the development of the Varvarinskoye gold and copper mine.

- As at December 31, 2006, the Company had assets of $194.3 million, including non-restricted cash of $19.6 million.

- Capital expenditures on the development of the Varvarinskoye Project amounted to approximately $80.3 million in fiscal year 2006.

- Bought deal financings in period raised gross proceeds of approximately $70 million

- Completion of and first draw down from project debt facility

- Consolidated pre-tax loss for the year of $8.9 million (2005 - $4.6 million) includes non-cash share option expense of $5.7 million (2005 - $0.6 million).

Operational

- Updated estimates of mineral resources and reserves at Varvarinskoye.

- Mining fleet purchased and delivered to site.

- Pre-stripping the top soil and overburden from the central pit at the Varvarinskoye continued in line with schedule.

- Civil engineering work on tailings dam largely completed

- Construction of the process plant and infrastructure continued.

- Completion of the 70 km dedicated power line.

- Continued enhancement of management and operating team at Varvarinskoye.

Tony Williams Chairman of EMC commented today:

"During the year we have had to overcome a number of obstacles at Varvarinskoye which delayed progress on the project as well as the first draw-down from the debt facility. However, we now have secured the finance and have the people in place to complete the construction phase and remain on target to commence the plant commissioning in Q4 2007. Thereafter we expect to ramp up to full production in Q1 2008 and complete the evolution of the Company from exploration and development to commercial mining."

MANAGEMENT'S DISCUSSION AND ANALYSIS

A full Management's Discussion and Analysis of results for the year ended December 31, 2006 ("MD&A") and Financial Statements for the Company for the year ended December 31, 2006 ("Financials") are available on SEDAR at www.sedar.com or on the Company's website at www.europeanminerals.com. These documents can also be obtained on application to the Company. The following information has been extracted from the MD&A and the Financials.

FINANCIAL RESULTS

Description

The Company's principal asset is the Varvarinskoye Gold-Copper deposit ("Varvarinskoye" or "Varvarinskoye Project") located in the Republic of Kazakhstan and held by a wholly owned subsidiary of the Company, JSC Varvarinskoye ("JSCV").

Fiscal year 2006 continued a period of expansion and development for the Company. Management's focus has been to drive the development and construction of the plant and mining infrastructure at Varvarinskoye. Management anticipates fiscal year 2007 will be the last full year of development. The commissioning of the plant at Varvarinskoye is expected to commence in Q4 2007 followed by a ramp-up to full commercial mining production targeted for Q1 2008.

Results for the year

The Company has incurred a pre-tax loss for fiscal year 2006 of $8.9 million compared to $4.6 million for fiscal year 2005, an increase of $4.3 million.

The Company's revenues for fiscal years ended 2006 and 2005 represent interest income on cash deposits held. Total revenues for fiscal year 2006 are $1.8 million compared to $1.2 million for 2005. The year-on-year increase of $0.6 million is attributable to the Company holding increased average cash balances in fiscal year 2006 over fiscal year 2005.

Administration costs of $2.4 million have been recorded for fiscal year 2006 compared to $1.6 million for 2005. The increase of $0.8 million is in line with Management's expectations and reflects the cost of increasing the Company's management team. Stock based compensation (which is a non-cash expense)for fiscal year 2006 was $5.7 million compared to $0.6 million for fiscal year 2005. During fiscal year 2006 the Company awarded options to members of its Board, Management and key employees. An appropriate option award is considered to be an integral component in attracting and retaining key staff

In the year ended December 31, 2005, the Company made supplier payments totalling $1.0 million. These payments were made under the LSTK contract and included in the carrying value of Varvarinskoye property, plant and equipment at December 31, 2005. During the year ended December 31, 2006, the Company identified that during the transition from the LSTK to the EPCM with SENET and that no ultimate benefit or betterment of the Varvarinskoye Project was derived from the costs incurred and consequently these amounts were written off in fiscal year 2006. This is more fully described under "Termination of lump sum turnkey contract" see below.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2006 the Company's main source of liquidity was unrestricted cash of $19.6 million (2005-$9.4 million).

The Company's spending incurred on its Varvarinskoye project and its working capital requirements during fiscal year 2006 have been financed mainly through equity.

In March 2006, the Company completed a bought deal financing raising gross proceeds of approximately $70 million. The proceeds have been split between share capital and share purchase warrants. Issue costs totalling $4.6 million were booked.

On December 19, 2006 the Company concluded negotiations on a debt facility of $61 million to finance the remaining capital spend on the Varvarinskoye Project. As at December 31, 2006, the Company had estimated capital commitments with respect to the Varvarinskoye Project of approximately to $47 million which equates to the unutilized debt facility at that date.

In connection with and as a condition of drawdown under the debt facility, EMC also implemented the Hedging Facility on December 19, 2006. The Hedging Facility is in the form of a monthly US dollar, flat forward gold sale over 8 years. The Company has sold 443,000 ounces of gold and has locked in a guaranteed price of $574.25 per ounce for the entire period. The Hedging Facility is un-margined with deliveries of gold into the hedge scheduled to commence in the first quarter of 2008. The hedge represents approximately 50% of the estimated production during its term, but only approximately 20% of the current proven and probable reserves of gold calculated by Orelogy.

At December 31, 2006, the Company's consolidated working capital comprising cash, accounts receivable and prepaids and less accounts payable was $8.3 million compared to $1.2 million at December 31, 2005 representing an increase of $7.1 million. The increase in working capital arose as a result of increased cash resources of $10.1 million on a year-on-year basis, following the completion of the debt facility and the first draw-down. This was offset by an increase in accounts payable and accrued liabilities of $3.0 million.

Included in the working capital calculation at December 31, 2006 are liabilities relating to the Varvarinskoye Project of approximately $4.5 million. Since the year end these amounts have been paid from further draw-downs from the debt facility.

Project capital spend during the year ended December 31, 2006 was $80.3 million (2005 - $54.9 million). This represents amounts spent on the Varvarinskoye Project and comprises capitalized development costs of $6.4 million, capitalized interest and finance charges of $0.2 million, $2.6 million relating to asset retirement obligations and plant property plant and equipment of $71.1 million.

REVIEW OF OPERATIONS

Varvarinskoye Project

By December 31, 2006 the entire mining fleet had been purchased and delivered to site. The installation of the 70km dedicated power line had been completed, and energized, providing power to Varvarinskoye, prior to the year end. Good progress was also made in preparing the open pits for commercial mining activity. By December 31, 2006 approximately 9.4 million tonnes of pre-strip material had been removed on schedule and preparations made for stockpiling of ore. The Company currently plans to have one million tonnes of ore on the stockpiles when the process plant commences commissioning.

Civil engineering work on the water storage and tailings dams has been largely completed. Processing plant equipment is arriving on site and work on various infrastructure buildings, including the accommodation camp continues to progress.

During the year the Company continued to enhance its management and operating team at Varvarinskoye with the appointments of Kazakh national and expatriate managers. This has continued since the year end. Management is confident that the team at Varvarinskoye has the knowledge and experience to complete the construction phase of the project and, thereafter, to establish commercial mining.

Termination of lump sum turnkey contract ("LSTK")

In January 2006, the Company terminated the LSTK entered into with MDM Ferroman (Pty) Limited ("MDM"). Subsequently, the Company appointed SENET cc ("SENET"), a South African based design, engineering and project management company, to undertake a review (the "SENET Review") to reassess the design and cost of construction of the Varvarinskoye process plant and associated infrastructure. In February 2006, the Company received the SENET Review that included overall design parameters as detailed in the definitive feasibility study undertaken by MDM in November 2004. As a result of this review, the total cost estimate for completion of the Varvarinskoye process plant and related infrastructure rose to $60.8 million plus Engineering, Procurement, Construction and Management ("EPCM") fees and reimbursable costs payable to SENET of $8.8 million for a total of $69.6 million compared to total estimated plant and infrastructure costs of approximately $55.6 million under the LSTK.

The Company, through its wholly owned subsidiary, JSCV accepted the revised cost estimates and construction schedule submitted by SENET and concluded a formal EPCM contract appointing SENET as EPCM contractors, to supervise construction in conjunction with JSC Consolidated Development Corporation ("CDC"), a Kazakh construction company, and the Company's own project team.

Following the cancellation of the LSTK the Company was notified that MDM was the subject of insolvency proceedings. The Company subsequently received notification that funds advanced by the Company of approximately ZAR 29 million (2006 - $4 million; 2005 - $ 4.5 million) paid to MDM as payment for MDM sub-contractors' had been with-held by MDM's bankers. The Company believes that this is an act of expropriation and has received legal advice that supports EMC's belief that such amounts will be fully recoverable. However, there can be no assurance that the Company shall be successful in any legal actions it may take to recoup such advances from MDM's bankers, nor in the liquidator's (for MDM) ability to repay such amounts that may be awarded under such action. As a result, the Company may suffer losses arising from the LSTK contract arrangement and such losses may be material and have an adverse effect on the Company's financial condition.

Revised project costs and timing

On October 17, 2006, the Company announced revised total project capital costs to completion of approximately $158 million, an increase of some 9%, compared to the previously announced estimate of $145 million. The reasons for the increase are as follows: $3.5 million for additional general and administrative costs resulting from the delays in the construction schedule; $2.5 million for additional financing costs, including increased banking fees, insurance costs and legal fees; $2.5 million for anticipated additional pre-stripping costs in respect of a larger initial open pit arising from the revised mining plan; $2.5 million for Tenge/US$ exchange rate losses since February 2006 (during this period the exchange rate had moved from 135 Tenge to 122 Tenge to the US$); and $2.0 million for contingencies.

Some construction delays, outside of the control of the Company, arose in Q3 2006. These related to the late delivery of structural steel and a delay in the manufacture and delivery of certain items of plant and equipment. This resulted in a delay in the estimated plant commissioning from April to Q4 2007.

Resources

During the year ended December 31, 2006, following revisions in the interpretation of the Varvarinskoye geological model, "Ravensgate", part of Passeres Group Pty Ltd. of Perth, Western Australia, undertook updated mineral resource estimates under the definitions and guidelines specified in Canadian National Instrument 43-101. Grade and tonnage dilution factors requested by the independent engineers acting for the lenders of the project debt facility were also applied to the resource, resulting in, what Management believes to be, a more conservative estimate of gold and copper grades. The key assumptions, parameters and methods used in the preparation of the following mineral resource and mineral reserve estimates are detailed in the MDM Ferroman "Varvarinskoye Gold/Copper Project Bankable Feasibility Study" dated November 2004 (see the Company's news release dated November 10, 2004). The effective date for the following mineral resource estimates is December 15, 2006:



------------------------------------------------------------
MEASURED & INDICATED MINERAL RESOURCES at 0.01 gpt Au Cutoff
------------------------------------------------------------
Ore Type (3) Ktonnes Au gpt %Cu Oz Au Lbs Cu

HGCF 31,374 1.24 0.54 1,245,759 375,746,318
HGCP 7,050 1.08 0.48 244,218 75,116,458
LGCF 80,896 0.89 NR(1) 2,301,401 -
LGCP 3,832 1.02 NR(1) 125,106 -
TOTAL 123,153 0.99 0.53(2) 3,916,485 450,862,776
------------------------------------------------------------


Notes:

(1) "NR" means no economically recoverable copper.

(2) This grade is valid only for HGCF and HGCP.

(3) HGCF is High Grade Copper Feed -- flotation ore: HGCP is material stockpiled for treatment in the future: LGCF is Low Grade Copper Feed -- Gold leach ore: LGCP is Low Grade Copper Feed -- Gold leach ore from the weathering zone

The "qualified person" (as such term is defined in National Instrument 43-101) who compiled and is responsible for the updated mineral resource estimates for the Varvarinskoye project as disclosed above was Stephen Hyland, who is a Principal Consultant of Ravensgate. Mr. Andre Wulfse, who is a Principal Consultant of Ravensgate, and a "qualified person" (as such term is defined in National Instrument 43-101), reviewed and approved the above disclosures relating to such mineral resource estimates.

Reserves

During the year ended December 31, 2006, Orelogy Pty Limited ("Orelogy") of Perth, Western Australia generated updated Proven and Probable Mineral Reserve estimates for the Varvarinskoye project based on the Measured and Indicated categories of the resource model using a gold price of US$525 per ounce and a copper price of US$1.30 per pound. Capital and operating costs used in the reserve modeling were those established in December 2006 levels and had increased from those utilized in the MDM Ferroman "Varvarinskoye Gold/Copper Project Bankable Feasibility Study" dated November 2004. The effective date for the following mineral reserve estimates is December 15, 2006:



-------------------------------------------------------------------
PROVEN & PROBABLE MINERAL RESERVES
-------------------------------------------------------------------
Category (3) Tonnes ('000) Au gpt %Cu Oz Au ('000) Millions Lbs

Cu
HGCF 17,105 1.56 0.67 858 254
LGCF 40,250 0.98 NR(1) 1,271 -
LGCP 3,282 1.06 NR(1) 111 -
TOTAL 60,637 1.15 0.67(2) 2,241 254
-------------------------------------------------------------------


Notes:

(1) NR" means no economically recoverable copper.

(2) This grade is valid only for HGCF.

(3) HGCF is High Grade Copper Feed -- flotation ore: LGCF is Low Grade Copper Feed -- Gold leach ore : LGCP is Low Grade Copper Feed -- Gold leach ore from the weathering zone.

The "qualified person" (as such term is defined in National Instrument 43-101) who supervised the preparation of and is responsible for the updated mineral reserve estimates for the Varvarinskoye project as disclosed is Stephen Craig, who is an employee of Orelogy.

OTHER PROJECTS AND EXPLORATION

During fiscal year 2006, the Company continued to investigate sourcing additional exploration projects with a focus on properties in Eastern Europe and plans to continue these efforts in fiscal year 2007. Consistent with the Company's policy on expensing costs relating to non-specific projects, these expenditures have been written-off in fiscal years 2006 and 2005.

In 1999 the Company sold its interest in Tasbulat Oil Corporation ("Tasbulat"), a company producing oil in Kazakhstan. In line with the terms of the sale agreement, in January 2006, the Company received the final portion of the proceeds relating to this sale of $0.6 million, which have been deducted from the carrying value of this asset. The remaining net investment in oil and gas residual interests is expected to be recovered from the Company's share of a 1% gross overriding royalty (based on gross sales proceeds less certain sales related costs and taxes) which is payable to the Company from all oil produced from the Tasbulat Fields exceeding 2.0 million barrels of oil equivalent. During the year ended December 31, 2006 royalty income of $245,000 (2005 - $nil) was received. The Company anticipates full recovery of its residual net investment in oil and gas interests from future royalty income.

OUTLOOK

Fiscal 2006 has been and fiscal 2007 will be, a period of expansion and development for EMC. The Company's primary objectives have been to expand and develop its Varvarinskoye Project, with a target of commissioning its plant in Q4 2007, thereafter ramping up to full commercial mining operations and continuing to add value by developing other exploration projects.

At December 31, 2006 the Company had unrestricted cash of $19.6 million and $47.2 million of available debt facility. The Company anticipates the planned spend to complete the mining and plant infrastructure at Varvarinskoye at December 31, 2006 to be $47 million and Management believes the Company has sufficient working capital to fund the completion of the project.

Since December 31, 2006, the Company has continued to make additions to its Head Office and Varvarinskoye teams to ensure that the appropriate human resource base is in place to manage the Company through fiscal year 2007 during which it is anticipated the transition from an exploration to a mining company will be largely completed.

The Company's latest mine plan for Varvarinskoye, reflecting the metal prices and operating costs used to calculate the updated estimates of mineral resources and reserves, scheduled and optimized by Orelogy, and applying the assumptions and parameters as detailed under "reserves" above,anticipates annual gold production of 149,000 ounces in years one to three of the project at an estimated cash cost, after copper credits, of $127 per ounce. Over the estimated 17 year mine life average annual gold production is estimated to be 120,000 per annum ounces at an estimated cash costs, after copper credits, of $261 per ounce.

Management believes that achieving these mine plan targets will create a strong foundation to facilitate the Company's future development.



European Minerals Corporation
Consolidated Statements of Operations and Deficit
For the years ended December 31, 2006 and 2005
(in thousands of U.S. dollars except shares and per share amounts)

--------------------------------------------------------------------

2006 2005
$ $

Income
Interest 1,794 1,195
-------------------
Expenses
Investor relations 240 266
Administration 2,466 1,616
Legal and professional fees 665 595
Stock-based compensation 5,698 609
Foreign exchange (gain) loss (440) 1,680
Write-off of property, plant and equipment 1,001 -
Project and development expenditure 1,091 1,056
--------------------
10,721 5,822
--------------------
Net loss before income tax recovery (8,927) (4,627)
Income tax recovery 328 -
--------------------
Net loss for the year (8,599) (4,627)
Deficit - Beginning of year (62,125) (57,498)
--------------------
Deficit - End of year (70,724) (62,125)
--------------------
--------------------

Basic and diluted loss per common share (0.03) (0.03)
--------------------
--------------------

Weighted average number of shares ('000s) 259,837 160,264
--------------------
--------------------


European Minerals Corporation
Consolidated Balance Sheets
As at December 31, 2006 and 2005
(in thousands of U.S. dollars)

------------------------------------------------------------------

2006 2005
$ $

Assets
Current assets
Cash and cash equivalents 19,554 9,474
Restricted cash 1,249 24,435
Accounts receivable and prepaid expenses 474 324
--------------------
21,277 34,233
Restricted cash 15,000 -
Varvarinskoye property, plant and equipment 139,137 59,748
Net investment in oil and gas residual interests 1,693 2,544
Advances held by contractors bank 4,003 4,518
Other assets 13,145 5,310
--------------------
194,255 106,353
--------------------
--------------------

Liabilities
Current liabilities
Accounts payable and accrued liabilities 11,706 8,621
JSC Varvarinskoye purchase consideration - 2,108
--------------------
11,706 10,729
Convertible debt 540 -
Long-term debt 13,292 -
Future income taxes 2,272 2,600
Asset retirement obligations 3,052 470
--------------------
30,862 13,799
--------------------
--------------------
Shareholders' Equity
Share capital 174,985 120,359
Equity component of convertible debt 15 -
Share purchase options 9,599 2,285
Share purchase warrants 46,346 28,708
Share purchase units 2,376 3,141
Contributed surplus 796 186
Deficit (70,724) (62,125)
--------------------
163,393 92,554
--------------------
194,255 106,353
--------------------
--------------------


European Minerals Corporation
Consolidated Statements of Cash Flows
For the years ended December 31, 2006 and 2005
(in thousands of U.S. dollars)

--------------------------------------------------------------------

2006 2005
$ $

Cash provided from (used for)

Operating activities
Net loss for the year after income tax recovery (8,599) (4,627)
Adjustment to reconcile net loss to cash flow from
operating activities
Write-off of property, plant and equipment 1,001 -
Unrealized foreign exchange 515 -
Stock-based compensation 5,698 609
Future income tax recovery (328) -
Shares provided for consulting services 78 49
Changes in non-cash working capital
Decrease (increase) in advances held by contractors'
bank and accounts receivable and prepaid expenses 95 (52)
Increase in accounts payable and accrued
liabilities (1,883) 79
------------------
Cash provided by (used) in operating activities (3,423) (3,942)
------------------

Investing activities
Expenditures on Varvarinskoye property, plant and
equipment (68,513) (44,345)
Acquisition of minority interest in Varvarinskoye
project (2,250) (5,000)
Restricted cash 8,186 (24,435)
Recovery of net investment in oil and gas residual
interests 606 640
------------------
Cash used in investing activities (61,971) (73,140)
------------------

Financing activities
Common shares issued 64,624 78,550
Proceeds from exercise of stock options 135 31
Proceeds from exercise of warrants 36 -
Proceeds from exercise of units 3,313 367
Advances from convertible bonds and long-term debt 13,847 -
Deferred financing costs (6,481) (491)
------------------
Cash provided by financing activities 75,474 78,457
------------------
Increase in cash and cash equivalents 10,080 1,375
Cash and cash equivalents - Beginning of year 9,474 8,099
------------------
Cash and cash equivalents - End of year 19,554 9,474
------------------
------------------


European Minerals Corporation
Notes to Consolidated Financial Statements
December 31, 2006 and 2005
(in thousands of US dollars)


1 Continuing operations

European Minerals Corporation ("EMC" or the "Company") is a mineral exploration and development company focused on identifying, acquiring and developing resource projects world-wide. The Company's principal asset is the Varvarinskoye Gold-Copper deposit ("Varvarinskoye" or the "Varvarinskoye Project") located in the Republic of Kazakhstan. The Company is currently in the process of completing the development of the mine and plant facilities at Varvarinskoye. The Company anticipates that the commissioning of the plant will commence in Q4 2007 with a consequential ramp up to commercial mining production during Q1 2008.

The Company also controls exploration projects in the Republic of Kazakhstan and in Albania. The Company's shares are traded on the Toronto Stock Exchange and on the Alternative Investment Market of the London Stock Exchange.

As at December 31, 2006, the Company had forecast capital expenditures respect to the completion of the Varvarinskoye Project amounting to $47 million of which $30.6 million was a firm commitment at the balance sheet date. During 2006 and in order to provide funding for the completion of the capital expenditure on the Varvarinskoye Project, the Company finalised a project debt facility (note 7). As at December 31, 2006 the unutilized balance on this facility totalled $47.2 million.

2 Summary of significant accounting policies

The consolidated financial statements have been prepared using Canadian generally accepted accounting policies ("GAAP") using the following significant policies:

Basis of Consolidation

The principal subsidiaries and investees of the Company as at December 31, 2006 are as follows:

- Three K Mining and Exploration Limited (registered in the British Virgin Islands) ("Three K")

- JSC Varvarinskoye (registered in the Republic of Kazakhstan) ("JSCV")

The Company owns the entire issued share capital of the above entities. All intercompany balances and transactions are eliminated on consolidation.

Use of estimates

The preparation of financial statements in conformity with Canadian GAAP requires the Company's management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and related notes to the financial statements. Actual results may differ from those estimates.

Significant estimates used in the preparation of these consolidated financial statements include, but are not limited to, the recoverability of advances, the extent of proven and probable ore reserves and resources, determination of stock based compensation, the provision for future income taxes, and the estimated reclamation and closure cost obligations.

Foreign currencies

The Company's subsidiaries are integrated foreign operations. Revenues and expenses in foreign currencies are translated into United States dollars at the exchange rates on the dates of the transactions except for depreciation and amortization which are recorded as historic rates. Monetary assets and liabilities are translated at the exchange rates in effect at the balance sheet date. Non-monetary items are translated at historical rates. Differences arising on foreign currency translations are reflected in the consolidated statement of operations.

Cash and cash equivalents

Cash and cash equivalent balances include cash and short-term deposits with banks or other financial institutions that have an original maturity date of 90 days or less.

Mineral property interests

Mineral property interests represent capitalized expenditure related to the acquisition, exploration and development of mining properties, related plant and equipment and related borrowing costs. From the commencement of commercial operations, capitalized costs will be depreciated and depleted using a unit of production method over the estimated economic life of the mine to which they relate. Items of buildings, plant and equipment are recorded at cost and are depreciated on a straight line or diminishing balance basis over their useful estimated life as follows:



Buildings straight-line basis over periods from 3-20 years
Plant and equipment straight line basis over periods from 3-20 years
Vehicles straight line basis over 5 years

Office equipment, diminishing balance basis at annual rates of between
furniture and fixtures 20% and 30%


Exploration and associated costs relating to properties for which there is no evidence of economically recoverable mineralization are expensed in the period incurred. Exploration costs relating to properties for which economically recoverable reserves are believed to exist are deferred until the project to which they relate is sold, abandoned, placed into production or becomes impaired.

The Company reviews and evaluates its mineral property interests at least annually or when events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairment is considered to exist if the total future undiscounted cash flows are less than the carrying amount of the assets. Estimated future undiscounted cash flows are prepared using estimated future production, commodity prices, operating and capital costs and reclamation and closure costs. The future cash flows are for the known ore reserve at the time. If the future undiscounted cash flows are less than the carrying value of the assets, the assets will be written down to fair value and the write-off charged to earnings.

Net investment in oil and gas residual interests

Sales proceeds and royalties received are recorded as a reduction to the carrying value of the Company's net investment in oil and gas residual interests.

Asset retirement obligation

The Company recognizes the estimated fair value of liabilities for asset retirement obligations, which include reclamation and closure costs, in the period they are incurred. A corresponding addition to the carrying value of the related asset is recorded and depreciated over the life of the asset. The amount of the liability is subject to remeasurement at each reporting period for changes in the estimated timing or amount of expenditures and is accreted over time to the estimated retirement obligation ultimately payable through charges to operations.

The estimates are based principally on legal and regulatory requirements. It is possible that the Company's estimates of its ultimate reclamation and closure liabilities could change as a result of changes in regulations, the extent of environmental remediation required, changes in technology and the means and cost of reclamation.

Convertible debt

The convertible debt arising during the year ending December 31, 2006 has been segregated into debt and equity components. The financial liability component, representing the value allocated to the liability at the time of inception, is recorded as a long-term liability. The remaining component, representing the value ascribed to the holders' option to convert the principal amount into common shares, is classified in shareholders' equity as "Equity component of convertible debt".

These components have been measured at their respective fair values on the dates the debt was drawn down. The finance costs associated with the issue of the convertible debt are recorded as deferred financing costs and amortized over the period of the liability. Over the term of the debt obligation, accretion is recorded to bring the obligation to its face value over the period of the debt.

Income taxes

The Company follows the liability method of accounting for income taxes. Under this method, current income taxes are recognized for the estimated income taxes payable for the current period. Future income tax assets and liabilities are recognized for temporary differences between the tax and accounting basis of assets and liabilities as well as for the benefit of losses available to be carried forward to future years for tax purposes. Future income tax assets are evaluated and if realization is not considered more likely than not, a valuation allowance is provided.

Incentive stock option plan

The Company uses the fair value method for accounting for stock-based awards or grants to non-employees and employees, including those that are direct awards of stock, call for settlement in shares or cash or other assets, or are stock appreciation rights that call for settlement by the issuance of equity instruments. Under the fair value method, compensation expense attributed to the direct award of stock is measured at the fair value of the award at the grant date, using an option pricing model, and is recognized over the vesting period of the award. If and when the stock options are ultimately exercised, the applicable amounts of additional paid in capital and contributed surplus are credited to share capital.

Loss per share

Loss per share is calculated based on the weighted average number of common shares issued and outstanding during the year. Diluted loss per common share is calculated using the treasury stock method for outstanding stock options and warrants and the "if-converted method" for outstanding convertible bonds. Under the treasury stock method, common equivalent shares consist of the incremental common shares issuable upon the exercise of stock options and warrants and are excluded from the computation if their effect is anti-dilutive. Under the "if-converted" method, the cost of convertible debt instruments is added to the numerator in the calculation, the debt is assumed to have been converted at the beginning of the period and the resulting increase in common shares is added to the denominator. In 2006 and 2005 the calculation would be anti-dilutive in which case basic and diluted earnings per share would be the same.

3 Significant differences from United States accounting principles

The United States generally accepted accounting principles ("U.S. GAAP") reconciliation is included solely for the purpose of the Company's filing on the Alternative Investment Market ("AIM") of the London Stock Exchange. The Company is currently also listed on the Toronto Stock Exchange and is not a registrant with the United States Securities and Exchange Commission.

The consolidated financial statements of the Company have been prepared in accordance with Canadian generally accepted accounting principles "Canadian GAAP" which differ, in certain material respects, from U.S. GAAP.



US$000's, except per share amounts 12 months ended December 31,
----------------------------
2006 2005
$ $
Consolidated statements of operations
As reported in accordance with Canadian
GAAP (8,599) (4,627)
Derivative and hedging activities (c) (69,600) -
Future income taxes (c) 2,272 -
----------------------------

Net loss and comprehensive loss under U.S.
GAAP (75,927) (4,627)
----------------------------
----------------------------
Basic and diluted loss per common share
under U.S. GAAP (0.29) (0.03)
----------------------------
----------------------------
Consolidated balance sheet
Varvarinskoye property, plant and equipment
Under Canadian GAAP 139,137 59,748
Exploration expenditures (a) (4,786) (4,786)
----------------------------
Under U.S. GAAP 134,351 54,962
----------------------------
----------------------------
Convertible bonds
Under Canadian GAAP (15) -
Convertible debt (b) 15 -
----------------------------
- -
----------------------------
----------------------------
Unrealised derivative losses
Under Canadian GAAP - -
Derivatives and hedging activities (69,600) -
----------------------------
Under U.S GAAP (69,600) -
----------------------------
Future income taxes
Under Canadian GAAP (2,272) (2,600)
Derivatives and hedging activities 2,272 -
----------------------------
Under U.S GAAP - (2,600)
----------------------------
Total shareholders' equity
Under Canadian GAAP 163,393 92,554
Exploration expenditures (a) (4,786) (4,786)
Convertible debt (b) (15) -
Derivatives and hedging activities (c) (69,600) -
Future income taxes (c) (2,272) -
----------------------------

Total shareholder's equity under U.S. GAAP 86,720 87,768
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a) Resource Assets

Under Canadian GAAP, exploration costs relating to properties for which economically recoverable reserves are believed to exist are deferred until the project to which they relate is sold, abandoned, placed into production or becomes impaired. For U.S. GAAP purposes, the Company expenses all expenditures relating to unproven mineral properties as they are incurred. When proven and probable reserves are indicated by a bankable feasibility study for a property, subsequent exploration and development costs of the property are capitalised. The Company completed a bankable feasibility study in November 2004.

b) Convertible debt

Under U.S. GAAP, convertible debt instruments are classified as debt until converted to equity, whereas under Canadian GAAP, the long-term debt and equity components are determined and shown separately with the debt component being accreted over time to its face value by way of a charge to earnings.

c) Derivatives and hedging activities

U.S. GAAP requires that all derivatives be recorded on the balance sheet as either assets or liabilities at their fair value with changes in the fair value of derivatives adjusted for their related income tax effect to the extent that such taxes are more likely than not to be realized, are recognized in the earnings of the current period unless specific hedge accounting criteria are met. Under Canadian GAAP, gains and losses on these contracts are being recognized in earnings when the related metal production occurs.

ANNUAL GENERAL MEETING, ANNUAL REPORT, PROXY MATERIAL AND ANNUAL INFORMATION FORM

The Annual General Meeting of the Company is schedule for June 14, 2006 and will be held in London at a time and venue to be announced.

The Company's Annual Information Form was filed on SEDAR on April 2, 2007.

Documentation filed on SEDAR may be accessed on www.sedar.com.

INVESTOR INFORMATION

European Minerals Corporation



Trading Symbols: EPM-TSX
EUM-LSE (AIM)


THIS PRESS RELEASE IS NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES

This news release does not constitute an offer to sell or a solicitation of an offer to buy any of the securities of the Company in the United States. The securities of the Company have not been and will not be registered under the United States Securities Act of 1933, as amended (the "U.S. Securities Act") or any state securities laws and may not be offered or sold within the United States or to U.S. persons unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available.

No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This press release contains or refers to forward-looking statements. All statements, other than statements of historical fact, that address activities, events or developments that the Company believes, expects or anticipates will or may occur in the future are forward-looking statements. Such forward-looking statements include statements contained in this press release under the headings "Outlook", regarding targets, estimates and/or assumptions in respect of future production, costs and commodity prices. Such forward-looking statements also include, without limitation, statements contained in this press release regarding targets, estimates and/or assumptions in respect of mineral resources and reserves, timing of commencement of operations, potential mineralization, exploration results and future exploration, development and operational plans and objectives (including delineating additional mineral resources). These forward-looking statements reflect the current expectations or beliefs of the Company based on information currently available to the Company. Forward-looking statements are subject to a number of risks and uncertainties that may cause the actual results of the Company to differ materially from those discussed in the forward-looking statements, and even if such actual results are realized or substantially realized, there can be no assurance that they will have the expected consequences to, or effects on the Company. Factors that could cause actual results or events to differ materially from current expectations include, but are not limited to: the grade and recovery of ore which is mined varying from estimates; capital and operating costs varying significantly from estimates; inflation; changes in exchange rates; fluctuations in commodity prices; delays in the development of, and the commencement of operations at, the Varvarinskoye Project caused by unavailability of equipment, labour or supplies, climatic conditions, delays in the delivery and installation of plant and equipment or otherwise; termination or suspension of the Company's debt facility; uncertainty of the outcome of any litigation; inability to delineate additional mineral resources or reserves; and other factors. Any forward-looking statement speaks only as of the date on which it is made and, except as may be required by applicable securities laws, the Company disclaims any intent or obligation to update any forward-looking statement, whether as a result of new information, future events or results or otherwise. Although the Company believes that the assumptions inherent in the forward-looking statements are reasonable, forward-looking statements are not guarantees of future performance and accordingly undue reliance should not be put on such statements due to the inherent uncertainty therein.

Contact Information

  • UK
    European Minerals Corporation
    Tony Williams/Bert Kennedy
    Chairman/President and CEO
    + 44 (0) 20 7529 7508
    or
    North America
    Vanguard Shareholder Solution, Inc.
    Keith Schaefer
    1-866-448-0780 North America
    Email: ir@vanguardsolutions.ca