La Mancha Resources Inc.
TSX : LMA

La Mancha Resources Inc.

August 10, 2007 14:10 ET

La Mancha Reports Second Quarter Results

HIGHLIGHTS OF THE SECOND QUARTER - Gold production of 12,855 ounces - Revenues of $13.3 million - Cash flow from operating activities of $1.2 million - Net loss of $2.8 million

MONTREAL, QUEBEC--(Marketwire - Aug. 10, 2007) - La Mancha Resources Inc. (TSX:LMA) (hereinafter "La Mancha" or the "Company")

All amounts are in CA dollars, unless otherwise indicated.

Unaudited

La Mancha Resources Inc. produced 12,855 ounces of gold at an average cash cost of US$508 during the second quarter of 2007, generating revenues of $13.3 million. This compares to 13,777 ounces of gold produced at an average cost of US$320 in the corresponding period of 2006, for revenues of $14.0 million. This decrease in both total production and revenues can be explained by 1) lower gold output at both the Hassaï and Ity mines and 2) a reduction in La Mancha's interest in the Ity mine (from 51% to 45.9%) effective May 25, 2007, which means that the Company ceased consolidating 100% of Ity's results as it is obliged to consolidate Ity's revenues according to the proportional method as of that date. Lower revenues coupled with higher operating costs and an increase in exploration and administrative expenses led to a net loss of $2.8 million for the second quarter of 2007, which compares to a net profit of $3.1 million for the corresponding period of 2006.

In addition to the lower production, profitability was significantly affected by inflationary pressures due to:

- a strong increase in the price of consumables;

- a 5.3% increase (on a combined basis) in the Euro (Ivory Coast operations) and the Dinar (Sudan operations) against the US dollar; and

- higher tax expenses in Sudan and Australia.

Operations generated cash flow of $1.2 million during the second quarter of 2007, compared to cash flow of ($18,000) in the second quarter of 2006. Cash assets stood at $36.5 million as at June 30, 2007.

For the six months ended June 30, 2007, the net loss was $4.3 million and revenues were $27.0 million, compared to net earnings of $5.2 million and revenues of $28.2 million for the first half of 2006. Gold production for the first half of the year totalled 26,915 ounces in 2007 compared to 29,270 ounces in 2006.

OPERATIONS

The Hassaï mine produced 21,575 ounces of gold (8,630 attributable to La Mancha) during the second quarter of 2007, compared to 22,375 ounces of gold (8,950 attributable to La Mancha) produced during the corresponding period of 2006. Despite slightly better gold recovery, gold production fell due to a decline in the grade of the ore milled, to 4.0 g Au/t from 4.6 g Au/t a year earlier. The grade of the ore processed remained lower than the average grade of the deposit (4.7 g Au/t) pending the commissioning of the quartz line, which will allow the higher grade ore (up to 6.0 g Au/t) stockpiled next to the mill to be treated.

Despite a higher recovery rate, the cash cost increased to US$516 per ounce during the second quarter of 2007 from US$307 per ounce in 2006. This increase can be attributed to several factors, including the lower grade of the ore milled. On the mining front, a higher stripping ratio due to the start-up of two new pits over the quarter (all stripping expenditures were expensed) and a 18% increase of the price of the consumables led to a 24% increase in the total mining costs per ton of ore, which reached US$28/t of ore during the second quarter of 2007 compared to US$23/t of ore for the same period of 2006. Processing costs suffered similar inflationary pressures due to the increase in the price of energy (+30%), cyanide (+20%) and cement (+29%). The slower-than-anticipated commissioning of the new quartz line also contributed to the increase in milling costs.

Michel Cuilhé, President and CEO of La Mancha noted: "The Hassaï mining plan was developed with the assumption that the quartz ore stockpiled next to the mill would represent a higher proportion of the ore processed in the second quarter. The delay in commissioning the quartz line has had a negative impact on the mine's profitability on several fronts. Appropriate steps have been taken to complete the commissioning and provide room for improved performance at Hassaï in the last quarter of the year."

Construction of the new quartz circuit was completed in June. During the commissioning period, the milling rate increased from about 500 tpd (tonnes per day) in June to an average of 1,000 tpd during the first half of July 2007. However, a technical failure with the ball mill of this new line is limiting its current capacity to 500 tpd. Management expects the operating rate of the quartz line to gradually increase over time to its design processing capacity of 1,400 tpd by the end of the third quarter.

At June 30, 2007, there were approximately 1.0 million tonnes of quartz ore at an average grade of 4.6 g Au/t stockpiled near the mill, representing approximately two years of plant capacity once the quartz circuit becomes operational. The ease with which the quartz line will be fed once it becomes fully operational coupled with the higher grade of the quartz ore should contribute to a decrease in cash costs per ounce and higher gold production.

The profitability of our second quarter operations in Sudan were impacted by an additional tax charge due to the increase of the 2006 taxation rate applied to foreign companies. Such tax rate was increased from 5% to 10%. La Mancha's Sudanese tax adjustment charge paid during the second quarter amounted to $458,000.

For the six months ended June 30, 2007, Hassai's contribution was 17,490 ounces of gold at a cash cost of US$467 per ounce compared to 19,120 ounces at a cash cost of US$303 per ounce during the first half of 2006.

The Ity mine produced a total of 8,610 ounces of gold (4,225 attributable to La Mancha) during the second quarter of 2007, in line with its target. This compares to production of 9,460 ounces (4,827 attributable to La Mancha) during the second quarter of 2006. The year-over-year decrease in total production can be explained by the lower grade milled in 2007 vs. 2006. La Mancha's share of production also fell due to the reduction in its interest in the mine effective May 25, 2007. In accordance with Ivorian laws, La Mancha transferred 10% of its ownership in the Ity mine to the Ivorian government in order to renew its mining permit until 2013. Consequently, the Company's interest in the Ity mine was reduced from 51% to 45.9%, and results will now be consolidated based on the proportional method, in accordance with Canadian GAAP.

Cash costs increased to US$493 per ounce during the second quarter of 2007 compared to US$345 per ounce during the corresponding period of 2006. More then 50% of this increase in cash costs per ounce can be attributed to the decrease in grade milled. The average grade of the ore milled during the second quarter of 2007 remained inferior to the average grade of the reserves (5.2 g Au/t), standing at 3.1g Au/t compared to 3.7g Au/t for the corresponding quarter of 2006. Management expects the average grade to increase to the average grade of the reserves once mining shifts from the Flotuo-Zia pit to the new Mount Ity pit, in early 2008. In addition to the lower grade milled, cash costs per ounce were negatively affected by an unfavourable exchange rate and inflationary pressures on the price of consumables (cyanide +22%, cement +12% and energy +27%).

For the six months ended June 30, 2007, Ity's contribution was 9,425 ounces of gold at a cash cost of US$476 per ounce compared to 10,150 ounces at a cash cost of US$353 per ounce during the first half of 2006.

"The scarce availability of mining professionals coupled with long lead time to implement new technologies and the sustained inflation on costs is making La Mancha's optimization process longer than originally anticipated. However, we remain optimistic on the potential of the several initiatives currently underway: Hassai's quartz line, Ity's new production increase platform, cost reduction programs in both Hassaï and Ity and development of our two Australian projects, all of which should allow us to meet our yearly global gold production target of 74,300 ounces while contributing to the improvement of our operating results over the second half of the year." added Mr. Cuilhé.

PROJECT DEVELOPMENT

The development of White Foil and Frog's Leg, our two advanced mining projects in Australia, continued in accordance with the planned budget and schedule.

At Frog's Leg, a new resource estimate released in early July showed resources of 723,000 ounces of gold (measured and indicated), nearly double the previous resource estimate of 369,000 ounces as of year-end 2006. This increase was essentially attributed to two factors: the conversion of inferred resource to the measured and indicated categories following infill drilling done between October 2006 and February 2007, and the complete re-evaluation and interpretation of the Frog's Leg ore bodies during this same period. Since then, drilling has been ongoing at Frog's Leg. The new phase of this drilling program targets the gap between the Mist and Rocket resource envelopes. Four new holes totalling 1,851 meters were completed since June 2007. Results are expected from the lab in the upcoming weeks and will be disclosed as they become available.

The Frog's Leg feasibility study is now expected to be completed in September 2007. The slight delay in producing the feasibility study can be explained by the impact the updated resource calculation has on mine design. While feasibility reviews based on the December 2006 resource calculation have indicated positive results, it was recognized that the new resource update could significantly improve the already-good results. Feasibility work using the December 2006 resource calculation was halted and is now being completed on the basis of the new resource estimate.

Despite the delay in finalizing the feasibility study, the previously-completed positive pre-feasibility study and the significant increase in resources since then warrant the preliminary stages of portal development, which began in early July. Start of gold production remains scheduled for the first half of 2008.

Dewatering of the White Foil pit continued during the second quarter with 1,900 megalitres being pumped to the nearby transfer facility. As of July 31, less than 8 meters of water remained at the bottom of the pit. To date, more than 4,800 mega litres of water have been pumped out of the pit (including inflows), representing approximately 95% of all the water contained at the beginning of the dewatering operation. The current pumping system is being removed and will be replaced by an alternative system that is sufficiently flexible to allow the resumption of mining.

An initial mining plan is being completed, and mining operations remain scheduled to resume during the fourth quarter of this year. Moreover, a drilling program aiming at assessing the potential for a cutback of the current pit and/or determining the potential for an underground operation was initiated over the quarter. The first step of the program is to test some targets beneath, to the north of and to the south of the current pit. A budget of $1.2 million has been allocated to drill 43 holes totalling 9,789 meters before the end of the year.

A non recurring $869,000 stamp duty was charge to La Mancha by the Australian authorities in relation to the Australian assets transferred at the closing of the reverse take-over completed in September 2006.

CORPORATE DEVELOPMENT

Appointment

La Mancha is pleased to announce that Mr. Bill Plyley has been promoted to the role of Chief Operating Officer of the Company as of today. He succeeds to Mr. Philippe Viaud who had been attending the position since the closing of the reverse takeover, in September 2006. Mr. Plyley joined La Mancha in September 2006 as General Manager of the Australian operations where he led the development of the Company's two advanced projects in the Country. Mr. Plyley has more than 30 years of experience in the mining industry. His previous involvements with Placer Dome, Newmount/Normandy and more recently with Red Back Mining have led him to occupy General Management positions at four open-pit and underground mines, in three countries. Prior to joining La Mancha, Mr. Plyley was General Manager of the Chirano Gold Mines for Red Back Mining over its development period. Mr. Plyley holds a BSC. in Metallurgical Engineering from the University of Nevada. He will be occupying his new COO functions from La Mancha's offices in Perth until his replacement has been appointed.

Investor Relations Calendar

September 23-26: Denver Gold Forum
August 22-24, 2007: Presentations to investors in Ottawa and Toronto

Consolidated Financial Statements

The management discussion and analysis and unaudited consolidated financial statements with explanatory notes for the quarter ended June 30, 2007, are available in PDF format on La Mancha's website at www.lamancha.ca and through SEDAR at www.sedar.com.

ABOUT LA MANCHA RESOURCES Inc.:

La Mancha Resources Inc. is an international gold producer based in Canada with operations, development projects and exploration activities in Africa, Australia and Argentina. La Mancha's shares trade on the Toronto Stock Exchange (TSX) under the symbol "LMA". For more information, visit the Company's website at www.lamancha.ca.

Caution Concerning Forward-Looking Statements

This press release contains certain "forward-looking statements", including, but not limited to, the statements regarding the Company's strategic plans, future commercial production, sales and financial results, development, construction and production targets and timetables, mine operating costs; statements regarding capital expenditures, development plans, and exploration programs, objectives and budgets; statements regarding the time at which the new quartz line will be commissioned, the increase of its capacity over time and its anticipated positive impact on the production and costs; statements regarding the time at which operations will start at the Mount Ity pit and their impact on the average grade milled; statements regarding the time at which Frog's Leg feasibility study will be completed; statements regarding the re-commencement of White Foil production. Forward-looking statements express, as at the date of this press release, the Company's plans, estimates, forecasts, projections, expectations or beliefs as to future events and results. Forward-looking statements involve a number of risks and uncertainties, and there can be no assurance that such statements will prove to be accurate. Therefore, actual results and future events could differ materially from those anticipated in such statements. Risks and uncertainties that could cause results or future events to differ materially from current expectations expressed or implied by the forward-looking statements include, but are not limited to, factors associated with fluctuations in the market price of precious metals, mining industry risks, exploration risks, risks associated with foreign operations, environmental risks and hazards, uncertainty as to calculation of mineral reserves, requirement of additional financing or additional permits, authorizations or licences, risks of delays in construction and production and other risks referred to in La Mancha's 2006 Annual Information Form filed with the Securities Commissions, as well as the Toronto Stock Exchange.

The table of Highlights is available at the following address: http://www.ccnmatthews.com/docs/LMA_Highlights.pdf

Contact Information

  • La Mancha Resources Inc.
    Martin Amyot
    Vice President Corporate Development
    514-987-5115
    info@lamancha.ca