RNC Gold Inc.

August 10, 2005 09:00 ET

RNC Gold Announces Second Quarter 2005 Results

TORONTO, ONTARIO--(CCNMatthews - Aug. 10, 2005) -

Not for release in the United States

RNC Gold Inc. (TSX:RNC) today announced its second quarter financial results and operational highlights. The interim financial statements can be viewed at our website at www.rncgold.com and have been filed on SEDAR (www.sedar.com). All amounts are expressed in USD unless otherwise noted.

Significant developments during the second quarter of 2005 included:

- Net income of $528,693 or $0.01 per share;

- Elimination of the Company's "hedge book" through a combination of delivering gold production and cash payments to settle outstanding option contracts;

- An agreement with Nicaragua's privatization agency to restructure outstanding long term debt resulting in a gain of $2.7 million;

- Production of 16,156 ounces of gold at a cash operating cost of $404 per ounce;

- Purchase of Zopilote gold project in Honduras for consideration of 325,000 shares of RNC:

- Signed letter of intent to sell Picachos silver/gold properties in Mexico for total potential consideration of CAN$20 million.

"While the Company was profitable and made considerable progress in improving its balance sheet during the second quarter, ore delivery to the leach pads at the La Libertad mine continued to be below expectations," said Thomas Lough, President and Chief Financial Officer, RNC Gold Inc. "Although we significantly improved working capital, equipment availability could not be sustained and the supply of ore to the leach pads did not meet forecasts. Management recognizes that this is an unacceptable scenario and has made the decision to convert La Libertad to contract mining. To date, ore grades and recoveries approximate the existing plan. By achieving the required ore delivery schedule with the new contractor, it is anticipated that La Libertad will meet the previously stated annual production rate of 70,000 ounces of gold."

Financial Results

For the three months ended June 30, 2005, RNC reported net income of $528,693 or $0.01 per share, as compared to net income (before non-controlling interest) of $2,268,007 or $0.08 for the comparable period in 2004. The main factor in the decreased net income was the reduction in production from the La Libertad mine due to the shortfall in supply of ore to the leach pads. RNC had revenue of $6.8 million during the first quarter of 2005 compared to $9.5 million a year earlier. For the six months ended June 30, 2005, RNC has recorded a loss of $1.28 million or ($0.04) per share from revenue of $13.1 million. In the same period of 2004, the Company earned $1.5 million on revenue of $17.3 million.

Consolidated Financial Results Summary

(All amounts are in USD, 000's unless otherwise stated)

Q2 2005 Q2 2004

Gold sales (ounces) 15,954 23,969

Gold sales $6,805 $9,438

Average net realized gold price per ounce $406 $358

Cash operating cost per ounce sold (i) $404 $292

Net operating margin (deficit) ($753) $1,054

Income before non-controlling interest $ 529 $2,268
Income $ 529 $2,230
Income per share - Basic $ 0.01 $ 0.08
Diluted $ 0.01 $ 0.05
Weighted average common shares outstanding 40,354,359 26,441,403
Diluted common shares - end of period 63,633,450 41,466,467

(i) Calculated in accordance with the Gold Institute Standard to
include all direct mining costs, refining and transportation costs and
by-product credits.

Production Summary

All RNC's gold production came from its two mines in Nicaragua, La Libertad and Bonanza. During the second quarter, La Libertad produced 8,717 ounces of gold, a 47% decrease from production in the comparable period of 2004. La Libertad mined 256,141 tonnes (2004 - 332,985 tonnes) of ore at an average grade of 1.84 grams per tonne (2004 - 1.70 grams per tonne) and moved 749,297 tonnes of waste (2004 - 1,064,032 tonnes). The strip ratio was 2.93 tonnes of waste per tonne of ore (2004 - 3.20 tonnes of waste per tonne of ore). In addition, 229,810 tonnes of spent ore (2004 - 366,026 tonnes) was offloaded from the leach pads.

Under the terms of the letter of intent that RNC Gold has signed with a contract miner, the mining charge will be $1.80 per bank cubic meter. The contractor will purchase RNC's excess mining equipment at fair market value with the agreed purchase price to be deducted from the monthly contractor invoice over a five year period. Contractor mobilization and employee rationalization is estimated to cost $500,000. The contractor will be responsible for loading and hauling ore and waste. RNC will continue to perform the mine planning, drilling, blasting, crushing, agglomerating and processing. Future mining costs are now estimated to be approximately $1.00 per tonne moved.

At Bonanza, 46,891 tonnes of ore was fed to the mill at an average grade of 5.5 grams per tonne during the second quarter. Approximately 46% of the mill feed was from underground mining, 33% from open-pit mining and the remaining 21% of the mill feed was purchased from local small miners.

Bonanza gold production for the quarter was 7,439 ounces (2004 - 7,223 ounces) as compared to 6,501 ounces in the second quarter of 2005. During the second quarter, the ground conditions that resulted in increased dilution and reduced grades in the first quarter continued to improve. The average grade of mill feed increased from 5.1 grams per tonne in the first quarter to 5.7 grams per tonne in the month of June 2005.

Bonanza site management has increased mill throughput from all sources (underground, open pit and small miner purchases) in order to compensate for the shortfalls in budgeted grade. As a result, production from Bonanza is on track to reach the budgeted level of 30,000 ounces for 2005, however, the higher mill throughput at lower grades has resulted in elevated per ounce operating costs.

In light of the below budget performance of La Libertad during the first half of 2005, RNC has adjusted its forecasted range of total production to between 70,000 and 90,000 ounces depending on the speed at which the contractor reaches production capacity. This figure does not include any production that may come from the San Andres mine in Honduras that the Company is attempting to acquire.

San Andres Acquisition Update

The Company has provided a formal valuation opinion to the 75% owner of the San Andres Mine and indicated RNC's willingness to acquire the 75% interest. RNC currently holds an option to purchase the remaining 25% of San Andres and may proceed with this transaction independently. Negotiations are continuing.

Cerro Quema Construction

Construction at Cerro Quema has begun. The Company has acquired a used ADR plant, laboratory, agglomerator and conveying equipment. Earth works are scheduled to commence during the fourth quarter of 2005 with gold production to begin in the third quarter of 2006. It is now planned that contract mining will be used at Cerro Quema, resulting in a capital cost reduction of approximately $4.0 million from the original capital cost estimate of $14.0 million.

Exploration Summary

RNC has received assay analyses for 26 of the 50 holes drilled on the bulk tonne program at the Bonanza Mine. These assays have demonstrated that the widely disseminated near surface mineralization does not appear to extend significantly to depth. Instead several narrower, high-grade zones were detected. The Company is evaluating the economic potential of these high-grade zones and what they might contribute to Bonanza's production.

The exploration drill purchased in May 2005 is to arrive at Bonanza in August. It is anticipated that the new machine will drill approximately 11,000 metres per year. It is to be used to drill from surface to identify underground reserves and resources. The drill will also assist in better defining grade at depth to improve the mine planning process and grade control.

At La Libertad, RNC expects to begin exploring the Santo Domingo concessions located to the east of the existing mine during the fourth quarter of 2005.

About RNC Gold

RNC Gold Inc. is a gold mining company focused on projects in the Caribbean basin. RNC is positioned for growth through operational efficiencies, exploration potential on property around its present mines, through construction of new mines and the acquisition of new projects. The Company's main assets include the La Libertad and Bonanza mines in Nicaragua, the Cerro Quema development project in Panama and the Picachos exploration property in Mexico as well as the option to acquire 25% of the San Andres mine in Honduras. The Company has 40,569,021 common shares outstanding and on a fully diluted basis there are 63,847,736 securities outstanding.

Certain statements included herein, include those that express management's expectations or estimates of future performance, constitute "forward looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995. 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, regulatory, competitive and geological uncertainties and contingencies. Such forward-looking statements involve known and unknown risks, uncertainties and other risk factors that may cause the actual financial results, performance, or achievements of RNC Gold to be materially different from estimated future results, performance, or achievements expressed or implied by those forward looking statements. These are discussed in greater detail in RNC Gold's Annual Information Form and other reports filed with Canadian provincial securities commissions at www.sedar.com. RNC Gold expressly disclaims any intention or obligation to update or revise any forward- looking statements whether as a result of new information, events or otherwise.


as at June 30, 2005 and December 31, 2004
(Unaudited - prepared by management)
(expressed in U.S. dollars, unless otherwise stated)
June 30, December 31,
2005 2004
$ $
Current assets
Cash and cash equivalents 435,320 87,592
Accounts receivable 2,297,415 1,933,270
Inventory 4,267,946 4,015,535
7,000,681 6,036,397
Property, plant and equipment 18,365,977 19,949,228
Mineral properties 8,812,458 7,782,226
34,179,116 33,767,851
Current liabilities
Accounts payable and accrued liabilities 4,728,961 5,473,559
Interest payable - 2,300,000
Unrealized loss on option contracts - 2,129,771
Current portion of long-term debt 1,832,920 955,252
6,561,881 10,858,582
Long-term liabilities
Long-term debt 1,464,307 2,782,013
Due to related parties - 125,000
Asset retirement obligations 1,147,417 1,099,824
2,611,724 4,006,837
Shareholders' equity (deficiency)
Capital stock
Common shares 25,686,008 21,095,777
Warrants 9,178,928 6,991,914
Agents options 638,343 477,000
Contributed surplus 3,283,573 2,837,768
Deficit (13,781,341) (12,500,027)
25,005,511 18,902,432
34,179,116 33,767,851


for the three-month and six-month periods ended June 30, 2005 and 2004
(Unaudited - prepared by management)
(expressed in U.S. dollars, unless otherwise stated)

Three months Six months
ended ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
Gold sales 6,805,018 9,438,649 13,106,637 17,254,973
Mine operating costs (6,442,606) (7,011,042) (12,338,884) (12,253,046)
Royalties and
production taxes (92,230) 31,790 (174,939) (253,109)
Amortization and
depletion (1,013,302) (1,396,006) (2,018,555) (2,787,567)
Accretion expense
and severance costs (10,325) (9,390) (20,656) (18,780)
Net operating margin
(deficit) (753,445) 1,054,001 (1,446,397) 1,942,471

Administration (610,165) (438,357) (1,132,738) (650,528)
Exploration (364,445) (72,822) (463,724) (98,534)
Interest expense (35,011) (160,187) (174,573) (382,870)
Foreign exchange gains
(losses) (98,756) (100,588) (188,899) (240,160)
Other income (expense) 2,826,078 (401,907) 2,668,926 (409,220)
Stock based
compensation expense (235,213) (170,468) (445,805) (411,658)
Nicaraguan minimum
taxes (188,971) (262,153) (355,010) (476,553)
Non-hedge derivative
gain (loss) (11,379) 2,820,487 256,906 2,302,144
Income (loss) before
interest 528,693 2,268,007 (1,281,314) 1,575,093
interest - (37,735) - (112,845)
Income (loss) for the
period 528,693 2,230,272 (1,281,314) 1,462,248
Retained deficit - (14,310,034) (11,191,044) (12,500,027) (10,423,020)
Deficit -End of
period (13,781,341) (8,960,772) (13,781,341) (8,960,772)
Income (loss per
-Basic $0.01 $0.08 ($0.04) $0.07
-Diluted $0.01 $0.05 N/A $0.04
Weighted average number
of common shares
-Basic 40,354,359 26,441,403 36,293,068 22,091,580
-Diluted 63,633,450 41,466,467 57,247,483 34,800,753


for the three -month and six-month periods ended June 30, 2005 and 2004
(Unaudited - prepared by management)
(expressed in U.S. dollars, unless otherwise stated)

Six months Three months
ended ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2005
Cash provided by (used in)

Operating activities
Income (loss) before
non-controlling 528,693 2,268,007 (1,281,314) 1,575,093
Non-cash items
Amortization of property,
plant and equipment 1,013,302 1,396,006 2,018,555 2,787,567
Non-cash portion of
non-hedge derivative
gain (312,282) (3,676,043) (1,262,632) (3,902,410)
Accretion expense and
severance costs 10,325 9,390 20,656 18,780
Stock based compensation
expense 235,213 170,468 445,805 411,658
Non-cash gain on
settlement of
CORNAP debt (2,648,371) - (2,648,371) -
Other non-cash costs
(income) 31,240 (44,079) 46,198 (49,150)
(1,141,880) 123,749 (2,661,103) 841,538
Net change in non-cash
working capital balances
related to operations (800,184) (3,659,678) (2,182,514) (4,174,144)
(1,942,064) (3,535,929) (4,843,617) (3,332,606)
Investing activities
Purchase of property,
plant and equipment (305,765) (1,094,167) (435,304) (1,876,705)
Investments in mineral
properties (644,022) (762,714) (900,517) (1,179,327)

(949,787) (1,856,881) (1,335,821) (3,056,032)
Financing activities
Increase (decrease) in due
to related parties - (2,691,498) (125,000) (2,380,696)
Net proceeds of private
placement - 13,747,218 6,743,833 13,747,218
Proceeds of exercise of
warrants - - - 1,197,868
Increase (decrease) in
debt (311,845) (1,791,963) (91,667) (2,550,431)
(311,845) 9,263,757 6,527,166 10,013,959
Increase in cash and cash
during the period (3,203,696) 3,870,947 347,728 3,625,321
Cash and cash equivalents
-Beginning of period 3,639,016 258,653 87,592 504,279
Cash and cash equivalents
-End of period 435,320 4,129,600 435,320 4,129,600

Contact Information

  • RNC Gold Inc.
    Randy Martin
    Chairman and CEO
    (416) 365-9777
    RNC Gold Inc.
    T.W. Lough
    President & CFO
    (416) 365-9777
    The Equicom Group
    Martti Kangas
    (416) 815-0700 ext.243