Uruguay Mineral Exploration Inc.
TSX VENTURE : UME
AIM : UGY

Uruguay Mineral Exploration Inc.

April 11, 2006 07:00 ET

Uruguay Mineral Exploration Inc.: Interim Results For The Quarter Ended February 28, 2006 Quarterly Production Of 25,451 Ounces And Encouraging Drilling Results at Argentinita

LONDON, UNITED KINGDOM--(CCNMatthews - April 11, 2006) - Uruguay Minerals Exploration Inc (TSX VENTURE:UME)(AIM:UGY) today announced results for the quarter ended February 28, 2006. Profit after tax for the quarter was $2,322,000 as production continued at the planned 100,000 ounce per annum rate and the cash cost of $203 per ounce was in accordance with expectations.

Highlights for the three months ended February 28, 2006 include:

- Gold production of 25,451 ounces at an average cash cost of $203 per ounce.

- Net profit after tax of $2,322,000 or $0.05 per share after booking a fair value adjustment of $937,000 on non-hedge gold derivatives.

- Cash flow from operations of $4,495,000 before non-cash working capital movements.

- Sales were $12,167,000 and the average price of gold sold was $510 per ounce.

- The Lascano airborne gravity/mag survey has been completed (9,423 line kilometers) and the results are being evaluated.

- The Company has received encouraging drill results from its Argentinita project (Minas De Corrales) and is preparing to start a new drilling at Crucera, in south central Uruguay. Key drill results for the Argentinita project are attached.

The Argentinita results are encouraging as they confirm that the Company's structural interpretation of the area around the Flores granite is robust. The Company is developing a better understanding of the mineralization controls in this area which support a model that involves the emplacement of larger mineralized bodies in this area.

Highlights for the nine months ended February 28, 2006 include:

- Gold production of 75,937 ounces at an average cash cost of $US199 per ounce.

- Net profit after tax of $6,506,000 or $0.14 per share.

- Cash flow from operations of $13,702,000 before non-cash working capital movements.

- Sales were $35,214,000 and the average price of gold sold was $465 per ounce.

CHAIRMAN'S STATEMENT

QUARTER TO FEBRUARY 28 2006

The attached financial statements show a quarterly profit after tax of $2,322,000 ($6,506,000 for the 9 months ended February 28, 2006). During the quarter 25,451 ounces of gold were produced at a cash cost of $ 203 per ounce bringing the 9 month period total to 75,937 ounces at a cash cost of $ 199 per ounce. The average price of sales for the quarter was $ 510 per ounce. These results reflect the hard work that has gone into developing the Minas de Corrales Gold project over the past 2 years.

Efforts have continued in expanding exploration activities with a total of 17 full-time geologists and a number of consultants working in Uruguay. The Company now has 8 drill rigs (3 diamond, 1 diamond/reverse circulation, 3 reverse circulation and 1 rab rig) available to it.

After mining 31,000 contained ounces of gold from Zapucay / Argentinita area during 2004/05 the project was returned to exploration. Recent intersections demonstrate the potential to expand resources and target more significant volumes of mineralization.

Exploration activities away from the Minas De Corales area include the completion of an airborne geophysical survey at Lascano and the extension of this survey to other prospective areas. As detailed in the attached Management Discussion and Analysis plans are also in place to test gold targets in the Florida belt. A separate Presidents Report will no longer be published as these explanations have been incorporated into the Management Discussion and Analysis.

The Board met throughout the first week of April in Uruguay, during which time we reviewed the progress of all our activities. We are particularly pleased with the work that is being done on the Lascano anomaly, production at the mine and near mine exploration activities. Considerations commenced on the options on how best to generate shareholder value from the Cinco Rios diamond project.

We remain on course to declare our first dividend with the results for the full year which we expect to publish in August.

Once again I place on record the thanks of all the Board for the hard work of our employees.

Tony Shearer

Chairman

April 10, 2006



Argentinita Drill Results

Current quarter drill results include

RCARG 71 8 m @ 2.29 g/t Au from 14 m
RCARG 74 14 m @ 1.97 g/t Au from 4 m
RCARG 94 6 m @ 2.36 g/t Au from 36 m
RCARG 101 10 m @ 3.29 g/t Au from 20 m

From the previous quarter better results from this prospect include

RCARG 05 12 m @ 2.30 g/t from 0 m
RCARG 23 20 m @ 2.81 g/t from 10 m
RCARG 24 23 m @ 2.37 g/t from 10 m

Subsequent to the end of the quarter the following results have
been received

RCARG 109 32 m @ 1.26 g/t
(which includes 8m @ 4.46g/t) from 114m
RCARG 114 32 m @ 3.10 g/t from 28m
RCARG 116 26 m @ 1.73 g/t from 78m


Crucera Drill Results

Historic drill results (American Resource Corporation) -
selected holes:
---------------------------------------------------------------------
Hole No Easting Northing Intercept From -To
---------------------------------------------------------------------
VCR 1 1048.68 1009.08 7m @ 9.94 g/t 8m to 15m
VCR 2 1049.49 1020.15 2m @ 6.80 g/t 17m to 19m
VCR 3 1074.39 1011.56 6m @ 8.94 g/t 6m to 12m
VCR 4 1076.02 1026.13 3m @ 7.11 g/t 17m to 20m
VCR 6 1100.11 1028.54 8m @ 4.07 g/t 24m to 32m
VCR 8 1123.21 1017.5 2m @ 4.09 g/t 21m to 23m
VCR 9 1148.05 1003.73 5m @ 2.40 g/t 7m to 12m
VCR 15 1223.25 995.18 4m @ 4.3 g/t 8m to 12m
VCR 16 1223.39 1006.71 2m @ 6.24 g/t 21m to 23m
VCR 17 1248.03 991.96 10m @ 2.65 g/t 9m to 19m
VCR 18 1248.17 1000.15 4m @ 4.69 g/t 19m to 23m
VCR 19 1273.37 991.52 4m @ 4.90 g/t 8m to 12m
VCR 20 1273.68 999.55 3m @ 3.12 g/t 17m to 20m
VCR 21 1297.99 989.93 4m @ 4.58 g/t 7m to 11m
VCR 22 1297.33 998.03 4m @ 3.08 g/t 17m to 21m
VCR 23 1317.2 986 4m @ 4.43 g/t 6m to 10m
VCR 25 1099.38 1012.72 3m @ 3.10 g/t 14m to 17m
VCR 26 1024.26 1009.33 2m @ 3.59 g/t 7m to 9m
VCR 30 862.74 1001.16 3m @ 6.16 g/t 9m to 12m
VCR 31 863.72 1007.87 4m @ 5.83 g/t 7m to 11m
VCR 32 845.61 1008.22 23m @ 5.22 g/t 6m to 9m
VCR 33 848.29 1014.14 5m @ 12.23 g/t 9m to 14m
VCR 35 823.9 1021.83 4m @ 4.73 g/t 4m to 8m
VCR 36 823.82 1029.24 2m @ 7.5 g/t 12m to 14m
VCR 37 798.7 1023.83 3m @ 3.09 g/t 6m to 9m
VCR 38 797.78 1031.33 3m @ 8.64 g/t 14m to 17m
VCR 39 773.74 1021.42 3m @ 7.29 g/t 6m to 9m
VCR 40 773.09 1028.57 4.0m @ 4.09 g/t 13m to 16m
VCR 45 699.83 1006.94 4.0m @ 18.03 g/t 9m to 13m
VCR 46 698.39 1014.21 4.0m @ 7.65 g/t 19m to 23m
VCR 52 662.36 988.36 5.0m @ 2.28 g/t 13m to 18m
---------------------------------------------------------------------


ENDS

The Management Discussion and Analysis for the period ended February 28, 2006 can be obtained from the following link: www.uruguayminerals.com

Editors note:

Uruguay Mineral Exploration Inc., which joined AIM in December 2004, is a gold producer and exploration company focussed on identifying and developing mineral opportunities in Uruguay. UME is a fully integrated mining company, possessing the skills necessary to explore and develop its discoveries. The Company operates the only producing gold mine in the country (San Gregorio), and is also the leading mineral exploration company in Uruguay having assembled an exploration portfolio based on gold, base metals (copper, nickel, lead, zinc) and diamond prospects. In the first half of 2003, the Company discovered the Arenal deposit, currently the largest known gold resource in Uruguay. It is quoted in Canada (TSXV) and London (AIM) and Collins Stewart is the nominated adviser and broker.



For further information, please contact

Uruguay Mineral Exploration Inc

Tony Shearer, Chairman + 59 82 601 6354; tony@tonyshearer.com
Chris Clark, President +59 82 601 6354; urumin@adinet.com.uy

Shared Value Ltd
Emily Bruning +44 20 7321 5027

Collins Stewart Ltd
Andrew Smith +44 20 7523 8351
Martin Eales +44 20 7523 8351



Uruguay Mineral Exploration Inc.
Consolidated Interim Financial Statements
For the nine month period ended
February 28, 2006
(Unaudited )




In accordance with National Instrument 51-102 released by the
Canadian Securities Administrators, the Company discloses that its
auditors have not reviewed the un-audited financial statements for
the period ended February 28 2006.
---------------------------------------------------------------------

Uruguay Mineral Exploration Inc.
Consolidated Balance Sheets
(Unaudited)
(Thousands of United States Dollars, except where indicated)


As at As at As at
February 28 May 31 February 28
2006 2005 2005
---------------------------------------------------------------------
$ $ $
Assets

Current
Cash and cash equivalents 3,590 5,501 2,898
Accounts receivable 2,814 1,785 2,666
Inventories 7,792 7,170 6,016
Prepaid expenses and other 647 722 864
--------------------------------------
14,843 15,178 12,444

Property, plant and
equipment (Note 2) 24,788 19,675 19,962
Deferred exploration
costs (Note 3) 8,308 5,088 4,537
Future income tax 959 1,787 -
Deferred
stripping and other non
current assets (Note 4) 3,065 923 807

--------------------------------------
Total assets 51,963 42,651 37,750
--------------------------------------
--------------------------------------

Liabilities and Shareholders' Equity

Current liabilities
Accounts payable and accrued
liabilities 3,754 4,945 4,425
Debt (Note 5) 2,190 4,256 8,627
Unrealized fair value of
derivatives (Note 10) 2,529 180 823
--------------------------------------
8,473 9,381 13,875

Asset retirement obligation 1,624 1,558 1,394
Debt (Note 5) 1,818 391 -
--------------------------------------
Total liabilities 11,915 11,330 15,269


Share capital (Note 6) 31,125 29,383 22,644
Warrants (Note 6) 550 188 607
Contributed surplus (Note 7) 1,694 1,577 1,636
Cumulative translation adjustment (19) (19) (19)
Retained Earnings / (Deficit) 6,698 192 (2,387)
--------------------------------------
Total Shareholders' Equity 40,048 31,321 22,481

--------------------------------------
Total Liabilities and
Shareholders Equity 51,963 42,651 37,750
--------------------------------------
--------------------------------------
Commitments and contingencies (Note 11)


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

Uruguay Mineral Exploration Inc.
Consolidated Statements of Income
and Retained Earnings (Deficit)
(Unaudited)
(Thousands of United States Dollars, except where indicated)


Three months ended Nine months ended
February 28 February 28
2006 2005 2006 2005
---------------------------------------------------------------------
$ $ $ $

Sales 12,167 7,874 35,214 20,279
Net profit interest - - (635) -
-----------------------------------------------
Net Sales 12,167 7,874 34,579 20,279

Operating expenses 5,289 4,767 16,019 14,766

Amortisation, depletion
and accretion 2,181 1,293 6,497 2,230

Other expenses
Stock based compensation
expense 176 - 334 756
Fair value adjustment
for derivatives 937 (831) 2,349 823
General and
administrative 705 1,348 1,952 2,390
Interest and
financing fees 137 99 311 366
-----------------------------------------------
1,955 616 4,946 4,335

-----------------------------------------------
-----------------------------------------------
Income (loss) before
other items and
taxes 2,742 1,198 7,117 (1,052)

Other items
Gain on settlement
of net profit interest - - 888 -
Interest and other
income 138 3 40 (2)
Foreign exchange gain
/ (loss) (133) 8 (179) (15)

-----------------------------------------------
-----------------------------------------------
Income (loss) before
taxes 2,747 1,209 7,866 (1,069)
-----------------------------------------------
Income taxes 425 - 1,360 -

Net income (loss)
for the period 2,322 1,209 6,506 (1,069)

-----------------------------------------------
Retained earnings
(deficit), beginning
of period 4,376 (3,596) 192 (1,318)

Retained earnings
(deficit), end
of period 6,698 (2,387) 6,698 (2,387)
---------------------------------------------------------------------
---------------------------------------------------------------------

Basic earnings (loss)
per share 0.050 0.022 0.14 (0.031)
Diluted earnings (loss)
per share 0.046 0.020 0.13 (0.031)

Basic weighted average
no. of shares 46,708,080 43,762,246 46,387,746 43,280,357
---------------------------------------------------------------------
---------------------------------------------------------------------


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

Uruguay Mineral Exploration Inc.
Consolidated Statements of Cashflows
(Unaudited)
(Thousands of United States Dollars, except where indicated)


Three months ended Nine months ended
February 28 February 28
2006 2005 2006 2005
---------------------------------------------------------------------
$ $ $ $
Operating activities
Net income/(loss)
for the period 2,322 1,209 6,506 (1,069)
Adjustments for:
Amortization,
depletion and
accretion 2,181 1,293 6,497 2,230
Future income taxes (319) - 86 -
Deferred stripping (803) (328) (2,244) (467)
Fair value adjustment
of derivatives 937 (831) 2,349 823
Compensation expense
- stock based 176 - 334 755
Loss on sales of assets - - 114
Other 1 - 60 188
---------------------------------------------
4,495 1,343 13,702 2,460
Net change in non-cash
working capital
balances (Note 9(a)) (896) (1,659) (2,789) (2,509)
---------------------------------------------
3,599 (316) 10,913 (49)
---------------------------------------------
---------------------------------------------


Financing activities
Proceeds from the issue
of share capital,
net of costs 224 1,991 428 2,246
Deferred subscriptions - (125) - -
Proceeds from bank debt,
net of costs - 853 - 3,780
---------------------------------------------
224 2,719 428 6,026
---------------------------------------------

Investing activities
Refundable deposits 3 31 - (11)
Purchase of property,
plant and equipment (5,176) (2,205) (11,428) (5,967)
Payments for
exploration (1,347) (165) (2,474) (1,422)
Proceeds on sale
of assets - - 650 -
Payments on subsidiaries
acquired, net of
cash acquired - (150) - (650)
---------------------------------------------
(6,520) (2,489) (13,252) (8,050)
---------------------------------------------

Increase (decrease)
in cash (2,697) (86) (1,911) (2,073)

Cash and cash equivalents,
beginning of period 6,287 2,984 5,501 4,971
---------------------------------------------

Cash and cash equivalents,
end of period 3,590 2,898 3,590 2,898

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


1. Significant Accounting Policies

The unaudited interim financial statements of the Company have been prepared by management in accordance with Canadian generally accepted accounting principles. The reporting currency used is the United States dollars which is also the Company's functional currency. The preparation of consolidated financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The consolidated financial statements have, in management's opinion, been adjusted to reflect all adjustments required to reflect a fair presentation of these statements in accordance with the accounting policies of the company. These interim consolidated financial statements should be read in conjunction with the most recent annual consolidated financial statements for the year ended May 31, 2005 for detailed note disclosures. The significant accounting policies follow that of the most recently reported annual consolidated financial statements.



2. Property, Plant and Equipment


February 28 2006
------------------------------------------
Cost Accumulated Net Book
Amortization Value
----------- ---------------- --------

Land and lease rights $ 671 $ - $ 671
Plant and equipment 20,605 6,368 14,237
Mineral properties 14,066 4,186 9,880
----------- ---------------- --------
$ 35,342 $ 10,554 $ 24,788
----------- ---------------- --------
----------- ---------------- --------


May 31 2005
------------------------------------------
Cost Accumulated Net Book
Amortization Value
----------- ---------------- --------
Land and lease rights $ 671 $ - $ 671
Plant and equipment 14,234 2,780 11,454
Mineral properties 8,995 1,445 7,550
----------- ---------------- --------
$ 23,900 $ 4,225 $ 19,675
----------- ---------------- --------
----------- ---------------- --------


February 28 2005
------------------------------------------
Cost Accumulated Net Book
Amortization Value
----------- ---------------- --------
Land and lease rights $ 689 $ - $ 689
Plant and equipment 14,178 1,993 12,185
Mineral properties 7,983 895 7,088
----------- ---------------- --------
$ 22,850 $ 2,888 $ 19,962
----------- ---------------- --------
----------- ---------------- --------


a) On November 30, 2005 a subsidiary of the Company acquired the 10% net profits interest over key tenements within the Minas de Corrales Project including the tenements on which the Arenal deposit is located. The total cost of the acquisition was $ 4,246 with $ 3,500 allocated to mineral properties and $ 746 allocated to deferred exploration and development costs. The consideration for the acquisition was 290,000 common shares and $ 3,150 payable in 3 equal annual installments of $ 1,050. Terms of the notes are detailed at Note 5(d). An additional $ 1,050 is payable to the vendor if the average daily gold price for the 36 months to 30 June 2008 exceeds $400 per ounce.

b) The Arenal project reached commercial production on October 1, 2005. Accumulated deferred exploration and development costs of $ 6,551 relating to the Minas de Corrales project were capitalized and are being amortized on units of production basis.

c) The plant is located on leased land. The lease expires in 2026. No further payments are due on the lease. Included in plant and equipment is $ 220 (2005 - $ 288) of spare parts that are amortized over 5 years. Included in mineral properties is $ 2,411 (2005 - $ 982) of mine development costs.



3. Deferred Exploration and Development Costs


February 28 May 31 February 28
2006 2005 2005
--------------------------------------------
Acquisition costs and
option payments $ 1,521 $ 775 $ 650
Exploration, development
and other property costs 5,311 2,972 2,339
Capitalized indirect
overheads, net of
exchange gains 1,476 1,341 1,548
--------------------------------------------
$ 8,308 $ 5,088 $ 4,537
--------------------------------------------
--------------------------------------------


a) The Uruguay Mining legislation requires all mining titles to be supported by guarantees for any environmental rehabilitation requirements resulting from exploration or mining activities. These guarantees are required to be posted by non-title holders. As a result, certain of the Company's employees, officers and directors have provided personal assets as guarantees. The Company intends to compensate these individuals in the event that the guarantee is called. The Company has also agreed to pay a guarantee fee to the individuals at rates advantageous to the Company. This fee is based on the amount of the guarantee and is negotiated on a case-by-case basis. The total guarantees provided at February 28, 2006 were approximately $ 922. These relate to potential site restoration responsibilities associated with exploration activities. In addition, as a consequence of the acquisition of the San Gregorio mine, the Company has assumed full responsibility for the rehabilitation of the mining site. This obligation is supported by a rehabilitation guarantee of $1,500.



4. Deferred Stripping and Other Non Current Assets


February 28 May 31 February 28
2006 2005 2005
--------------------------------------------

Refundable deposits $ 140 $ 140 $ 136
Capitalized debt
issue costs 113 215 204
Deferred Stripping 2,812 568 467
--------------------------------------------
$ 3,065 $ 923 $ 807
--------------------------------------------
--------------------------------------------


Costs and fees relating to the secured financing facility have been capitalized and will be amortized over the life of the facilities, commencing December 1, 2004. The actual strip ration during 2006 is 6.5 compared to a reserve rate of 4.34.



5. Long Term Debt

February 28 May 31 February 28
2006 2005 2005
--------------------------------------------

Drawn debt facilities

Working capital
facility (a) $ - $ - $ 4,000
Deferred payment on
equipment (b)(c) 1,161 4,647 4,627
Deferred payment on
acquisition (d) 2,847 - -
--------------------------------------------
4,008 4,647 8,627
--------------------------------------------
Less current portion 2,190 4,256 8,627
--------------------------------------------
$ 1,818 $ 391 $ -

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

Available debt facilities
Working capital
facility (a) $ 2,000 $ 2,150 $ 4,650
Deferred payment on
equipment (b)(c) 1,161 4,647 4,627
--------------------------------------------
$ 3,161 $ 6,797 $ 9,277
--------------------------------------------
--------------------------------------------


(a) On December 8, 2004 the Company signed documentation for a secured financing facility of $6,500 replacing the interim working capital facility with Macquarie Bank Limited. This facility will provide $1,500 for environmental bonds and $5,000 for working capital needs. The facility will bear interest at a rate of Libor plus 2% and is secured by a general floating charge over all of the Company's assets. On 30 November 2005 the Company amended the secured financing facility to extend the working capital facility in the amount of $2,000 until 30 September 2006. The facility is not drawn at February 28, 2006.

(b) On August 5, 2004, Loryser S.A. signed a sale and purchase agreement for the purchase of $6,349 in mine equipment. The equipment is being purchased on deferred payment terms with an initial payment of 25%, twelve monthly installments equal to 15% and a final balloon payment of 60% 12 months from the date that equipment is assembled and ready to work. Interest on all balances outstanding accrues at the 90 day Libor rates plus 4%. Additional amounts relating to assembly and freight included in deferred payments on equipment will be paid following the final commissioning of the equipment. As at February 28, 2006 this obligation has been settled.

(c) On June 15, 2005 a subsidiary of the Company signed an amendment to the August 5, 2004 sale and purchase agreement to purchase an additional $1,352 in mine equipment from Komatsu Latin America Corporation. This equipment is being purchased on deferred payment terms with an initial payment of 25%, twelve monthly installments equal to 15% and a final balloon payment of 60% 12 months from the date that equipment is assembled and ready to work. Interest on all balances outstanding accrues at the 90 day Libor rates plus 4%. Additional amounts relating to assembly and freight included in deferred payments on equipment will be paid following the final commissioning of the equipment.

(d) On November 30, 2005 a subsidiary of the Company issued three unsecured convertible notes with a face value of $ 1,050 pursuant to the acquisition detailed at note 2(a). The three convertible notes are payable on or before July 30, 2006, July 30, 2007 and July 30, 2008 respectively. Each convertible note can be converted into 250,000 ordinary shares during a 30 day period prior to the final payment date for each installment. No interest accrues on the notes. The convertible notes have been recognized at their fair value using a 8% discount rate to give a liability of $2,847 at February 28, 2006.




6. Equity Instruments


(a) Authorized
Unlimited number of Common Shares

(b) Issued
Common shares

Common shares February 28, 2006 May 31, 2005
Number Amount Number Amount
----------------------------------------------
Issued and outstanding,
beginning of year 46,107 $ 30,308 42,865 $ 21,194
Issued for stock
options exercised 369 646 612 600
Issued for acquisition
of NPI (Note 6(d)) 290 1,096 - -
Issued for exercise of
warrants for cash - - 2,630 8,514
----------------------------------------------

Issued and Outstanding 46,766 32,050 46,107 30,308
----------------------------------------------

Less: cumulative share
issue costs (1) (925) (925)
----------------------------------------------

Issued and outstanding,
end of year 46,766 $ 31,125 46,107 $ 29,383
----------------------------------------------
----------------------------------------------

Warrants and convertible
notes February 28, 2006 May 31, 2005
Number Amount Number Amount
----------------------------------------------
Issued and outstanding,
beginning of year 250 $ 188 2,630 $ 548
Issued for finance fee - - 250 188
Issued for acquisition
of NPI (note 6d) 750 362
Exercised - - (2,630) (548)
----------------------------------------------
Issued and outstanding,
end of year 1,000 $ 550 250 $ 188
----------------------------------------------
----------------------------------------------


(1) These costs have been recorded gross of any related tax effect,
as the ultimate utilization of any related tax benefit is
currently uncertain.



(c)Warrants and Convertible Notes

On November 30, 2005, the Company acquired the net profit interest in tenements at the Minas de Corrales Gold Project as described at Note 2(a). Pursuant to this agreement the Company issued three convertible notes that provide the holder with the option to convert the note, with a face value of $ 1,050, into 250,000 ordinary shares. The note may only be converted during a 30 day period prior to the expiry date. The fair value of the option to convert the notes into ordinary shares was calculated as the difference between the nominal and fair value of the notes.



The convertible notes expire as follows:

Ordinary shares to be issued on Option Price
conversion of promissory note US $ Expiry Date
---------------------------------------------------------------------
250,000 4.20 July 30, 2006
250,000 4.20 July 30, 2007
250,000 4.20 July 30, 2008


During August 2004, the Company issued 250,000 warrants at an exercise price of $3.75 per share in satisfaction of a financing fee on the facilities detailed at Note 5 (a). The fair value of these options were estimated using the Black and Scholes option pricing model with the following assumptions: Dividend yield (nil), Expected volatility 40%, risk free rate (3%) and a weighed average life of 2 years. As such a value of $US188,146 was attributed to these warrants.

At February 28, 2006, the Company has 250,000 (May 31, 2005 - 250,000) warrants outstanding. During the period, the Company issued nill (2005 - 250,000) warrants. The outstanding warrants are exercisable as follows:



Number of Warrants Option Price
CDN $ Expiry Date
---------------------------------------------------------------------
250,000 3.75 August 8, 2006


(d) Employee Stock Options

Effective June 1, 2004 the Company adopted the recommendations of the CICA Handbook with respect to stock-based compensation and commenced to expense stock options granted from June 1, 2004 using the fair value method. Previously, no value was assigned to stock options or warrants issued in exchange for employee, directors and officers services.

The Company has a director and employee stock option plan under which it may grant options to its directors, officers, employees and consultants of the Company and its subsidiaries. The employee option Plan is for officers, directors and employees of the Company. Options under the plan are typically granted in such numbers as reflects the responsibility of the particular optionee and his or her contribution to the business and activities of the Company. Options granted under the plan have a term of up to 5 years. Except in specified circumstances, options are not assignable and terminate on the optionee ceasing to be employed by or associated with the Company. The terms of the plan further provide that the price at which shares may be issued under the Plan cannot be less than the market price (net of permissible discounts) of the shares when the relevant options were granted.

For the purposes of stock based compensation, the fair value of each option was determined on the date of granting using the Black-Scholes option pricing model with the following assumptions: Dividend yield (Nil) (2005 - Nil), expected volatility (50%) (2005 - range of 40% to 50%), risk-free interest rate (3.5%) (2005 - 3%), and weighted average life of 4.0 years (2005 - 4.0 years).

The following table summarizes information regarding the Company's outstanding options as at February 28, 2006:



Three months ended Nine months ended
----------------------- ------------------------
Weighted Weighted
Average Average
Number of Exercise Number of Exercise
Shares Price Shares Price
(000,s) CDN $ (000,s) CDN $
----------------------- ------------------------

Balance - beginning
of period 3,326 2.58 2,769 2.02
Options - granted 68 4.62 831 4.51
Options - exercised (179) 1.41 (369) 1.46
Options - expired/
forfeited - - (16) 3.00
---------- ---------
Balance - end of
period 3,215 2.68 3,215 2.68
---------- ---------
---------- ---------


The following table summarizes information about the stock options
outstanding to the officers, directors and staff at February 28, 2006:


Outstanding Exercisable
------------------------------------------- ---------------------
Weighted Weighted
Average Average
Option Exercise Remaining Exercise
Options price Price Life Options Price
(000,s) CDN $ CDN $ Years (000,s) CDN $
------------------------------------------- ---------------------

315 $ 0.40 $ 0.40 .9 315 $ 0.40
235 $ 0.75 $ 0.75 2.1 235 $ 0.75
150 $ 1.00 $ 1.00 1.6 150 $ 1.00
915 $ 1.50 $ 1.50 2.5 915 $ 1.50
259 $ 3.00 $ 3.00 3.3 259 $ 3.00
60 $ 3.40 $ 3.40 3.3 60 $ 3.40
250 $ 4.00 $ 4.00 3.2 250 $ 4.00
763 $ 4.50 $ 4.50 4.6 0 $ 4.50
200 $ 5.40 $ 5.40 3.7 200 $ 5.40
68 $ 4.62 $ 4.62 4.8 0 $ 4.62
------- ------
3,215 2,384
------- ------
------- ------

The remaining fair value of employee stock options to be expensed
is $924 (2005 - nil).



7. Contributed Surplus


The following table summarizes the movements in contributed surplus.



February 28 May 31 February 28
2006 2005 2005
--------------------------------------------

Balance, beginning
of period $ 1,577 $ 881 $ 881
Expense for the period 334 756 755
Transfer on exercise
of options (217) (60) -
--------------------------------------------
$ 1,694 $ 1,577 $ 1,636
--------------------------------------------
--------------------------------------------


8. Segmented Information


The Company has three reportable segments: Gold, exploration and corporate. The corporate segment is responsible for corporate financing and other business development activities for the Company. The Gold segment operates the San Gregorio Gold Project and the exploration segment is devoted to the acquisition and exploration of mineral properties. The gold and exploration segments operate solely in Uruguay. Precious metals are refined and sold in Europe.



February 28 2006
Gold Exploration Corporate Total
------------------------------------------------
For the 3 months
ending
Sales $ 12,167 $ - $ - $ 12,167
Amortization and
depreciation $ 2,174 $ 7 $ - $ 2,181
Net income (loss) $ 2,789 $ - $ (467) $ 2,322

For the 9 months
ending
Sales $ 35,214 $ - $ - $ 35,214
Amortization and
depreciation $ 6,477 $ 20 $ - $ 6,497
Net income (loss) $ 8,020 $ (474) $ (1,040) $ 6,506

As at February 28
Property, plant
and equipment $ 24,621 $ 157 $ 10 $ 24,788
Deferred exploration $ - $ 8,308 $ - $ 8,308
Total assets $ 39,941 $ 9,097 $ 2,925 $ 51,963

February 28 2005
Gold Exploration Corporate Total
------------------------------------------------
For the 3 months
ending
Sales $ 7,874 $ - $ - $ 7,874
Amortization and
depreciation $ 1,277 $ 16 $ - $ 1,293
Net income (loss) $ 2,216 $ (189) $ (818) $ 1,209

For the 9 months
ending
Sales $ 20,279 $ - $ - $ 20,279
Amortization and
depreciation $ 2,289 $ 41 $ - $ 2,230
Net income (loss) $ 892 $ (399) $ (1,562) $ (1,069)

As at February 28
Property, plant
and equipment $ 19,787 $ 165 $ 10 $ 19,962
Deferred exploration $ - $ 4,537 $ - $ 4,537
Total assets $ 29,300 $ 4,795 $ 3,655 $ 37,750


9. Supplementary cash flow information

Three months ended Nine months ended
Net change in non-cash February 28 February 28
working capital 2006 2005 2006 2005
--------------------------------------------

Prepaid expenses
and other $ 176 $ 42 $ 75 $ (196)
Accounts receivable 316 (859) (287) (1,172)
Accounts payable and
accrued liabilities (957) 402 (1,191) 805
Inventory (431) (1,244) (1,386) (1,946)
--------------------------------------------
$ (896) $ (1,659) $ (2,789) $ (2,509)
--------------------------------------------
--------------------------------------------
Other information
Cash interest paid $ 79 $ 99 $ 253 $ (178)
Cash taxes paid - - - -
---------------------------------------------------------------------
---------------------------------------------------------------------


10. Financial Derivatives


The Company holds various forms of financial instruments. The nature of these instruments and the Company's operations expose the Company to commodity price risk, currency risk, credit risk, and fair value risk.

The Company uses financial derivatives to mitigate the effect of certain risks that are inherent in its business. As at February 28, 2006 the Company had entered into a number of financial derivatives to reduce its exposure to fluctuations in the gold price. These instruments consist of gold option contracts. The company intends to deliver into these contracts as they fall due.

For these contracts the fair value was calculated using the spot price at period end, expected future prices and volatilities. The nature and level of these contracts are such that they offer a degree of downside protection while allowing the company some participation in price appreciation. The fair value of these contracts is noted below. The net value of these contracts have been recorded as a liability.




February 28 May 31 February 28
2006 2005 2005
--------------------------------------------
Gold put options 5 165 -
Gold call options (2,219) (345) (823)
Gold spot deferred contract (315) - -
--------------------------------------------
(2,529) (180) $ (823)
--------------------------------------------
--------------------------------------------


The Company has entered into put option contracts on 10,000 ounces at a forward price of $US 400 per ounce and a further 10,000 ounces at a forward price of $US 430 per ounce. To cover the cost of these put option contracts the company has sold call option contracts on 10,000 ounces at a forward price of $US 436 per ounce and a further 10,000 ounces at a forward price of $US 486.5 per ounce. The put and call options are matched in timing and will be delivered into on a monthly basis at a rate of 2,500 ounces per month. The lower value put and call options are delivered first.


11. Commitments and Contingencies

In addition, to the commitments detailed in Note 3 on exploration of mineral properties, the Company has the following commitments:

(a) Pursuant to the acquisition of the net profit interest over tenements of the Minas De Corrales Project the Company may be required to make a contingent payment of $1,050 to the vendor on July 30 2008. The amount will only be paid if the average daily price of gold during the 36 month period to 30 June 2008 exceeds $US 400 per ounce. No liability for this potential payment has been recognized at February 28, 2006 as it is not certain that the contingent payment criteria is met.

(b) The Texas and Mal Abrigo interests acquired by the Company are subject to a 2% net profits interest and a 1% net smelter return respectively, payable to the vendor.

12. Differences between Canadian GAAP and International Financial Reporting Standards

The company prepares its financial statements in accordance with Canadian GAAP, which conforms to IFRS in all respects material to the Consolidated Financial Statements presented by the Company.

Contact Information

  • Uruguay Mineral Exploration Inc
    Tony Shearer
    Chairman
    + 59 82 601 6354
    tony@tonyshearer.com
    or
    Uruguay Mineral Exploration Inc
    Chris Clark
    President
    +59 82 601 6354
    urumin@adinet.com.uy
    or
    Shared Value Ltd
    Emily Bruning
    +44 20 7321 5027
    or
    Collins Stewart Ltd
    Andrew Smith
    +44 20 7523 8351
    or
    Collins Stewart Ltd
    Martin Eales
    +44 20 7523 8351