Uruguay Mineral Exploration Inc.

Uruguay Mineral Exploration Inc.

November 06, 2006 17:05 ET

Uruguay Mineral Exploration Inc.: Operating Update Prior to the end of the Second Quarter 2006/07

LONDON, UNITED KINGDOM--(CCNMatthews - Nov. 6, 2006) -

- Completion of mine plan review
- New Appointments
- Drilling to start at Lascano in mid November
- UME fully exposed to gold price by end of November

Uruguay Mineral Exploration Inc ("UME" or the "Company") (TSX VENTURE:UME) (AIM:UGY) today announced an operating update prior to the end of the second quarter of its financial year.

Chairman's Statement

Tony Shearer, chairman of UME, said "Our first quarter's gold production was lower than our target, as will be the second quarter's production. This is because, for operational reasons, we mined an area that contained lower grade ore, that we had planned to mine in the second half of the year. In the second half of the year we will mine the higher grade ore, and production should rise accordingly. The new production target of 95,000 ounces of gold for the year ending 31st May 2007 is very close to our previous target of 100,000 ounces, and should result in a cash cost of approximately US$ 265 per ounce for the full year.

"Terry Butler has been promoted to Operations Manager to focus attention on production targets.

"Drilling on the large geophysical anomaly at Lascano will start in the next few weeks. While the exploration risk is high, the upside potential value to shareholders could be significant.

"By the end of November, we will be unhedged, and with remaining debt reduced to approximately $2.5 million, UME is strongly positioned to invest future cash flows in exploration and growth."

Mine Plan Review

The Company expects to produce 95,000 ounces in the full year to 31 May 2007, with production of 39,000 ounces in the first half of the year and an estimated further 56,000 ounces in the second half. The cost per ounce for the full year is now expected to be US$ 265.

A re-evaluation of the geotechnical risks associated with the development of the Arenal pit has led to the company's revised forecast, which is slightly short of its original target of 100,000 ounces. The Company had to reschedule an estimated 270,000 tonnes of ore at 3.4g/t from the current year to later years, following the wedge failure in February 2006. This reduced the Company's flexibility to schedule consistent quarterly production for the 2007 financial year. Some of the higher grade material originally scheduled for the second quarter has been deferred several months due to the relocation of the access ramp to the hanging wall. This relocation mitigated the risk against a ramp failure which could potentially have prevented access to ore zones and now provides access to the higher grade ore zones which will be mined in the second half of the year. Total ore mined for the full year is expected to be close to original targets and with higher-grade material available from December 2006, the company is confident that it will lift production in the second half of the year to 56,000 ounces. This confidence is based on the strong correlation of the reserve grade to the actual ore grade mined over the past year.

San Gregorio Operations Manager appointed

The company has promoted Terry Butler to the position of San Gregorio Operations Manager, a role in which he assumes responsibility for mine production, thereby increasing focus on achieving targets at San Gregorio. A Senior Mining Engineer will also be appointed to strengthen the Company's planning resources. Both positions will report to John Sadek as Vice President, Operations.

Comments on first quarter results

On 12 October 2006, UME announced gold production in the first quarter of 19,175 ounces at an average cash cost of US$332 per ounce compared with 25,163 ounces at a cash cost of $212 per ounce in the corresponding period of the previous year. In comparing the two quarters, cash costs per ounce of gold produced rose for two reasons: first, total cash costs increased by 19 per cent due to the higher strip ratio of 5.59 (compared with 4.34) that was effective from 1 July 2006. The reasons for the increase in the strip ratio were set out in the Company's Management Discussion and Analysis on the results for the year ended 31 May 2006, which were released on 24 August 2006 and referred to in the Company's Management Discussion and Analysis on the first quarter's results.

Second, on 30 June 2006, the Company announced that the mine plan was being revised because of the slip in the pit wall in February 2006 which restricted the Company's ability to blend ore to achieve a constant production level of 25,000 ounces. As total cash costs per quarter are relatively consistent, cash costs per ounce increase when production levels fall and decrease when production levels increase.

Lascano Drilling Initiated

Since September 2006, a new diamond drill rig has been working on resource drilling at the San Gregorio mine. It will now move to Lascano where, in mid-November, it will start drilling the first of 3 holes that the Company intends to drill at the geophysical anomaly. The drill holes are planned to intercept their target zone at less than 1,000 metres, and the drilling is expected to be completed by February 2007. The geophysical anomaly at Lascano is a very large gravity high, and is over 70 kilometres long and up to 40 kilometres wide. An airborne gravity/magnetic survey completed in February 2006 defined the geophysical anomalies into two or three prominent circular structures. Drilling is planned to test the system for signs of mineralization.

UME now unhedged

UME entered into a series of hedging transactions as part of its programme to finance the acquisition of the San Gregorio mine and the immediate production cycle after this acquisition. The financing and related production have been fulfilled, and UME will be unhedged by the end of November. With remaining debt reduced to approximately $2.5 million and hedging eliminated, UME is strongly positioned to invest future cash flows in exploration and growth.

Qualified Person's Statement

The technical information presented in this press release has been reviewed and verified by Mr John Sadek, Vice President Operations and a Mining Engineer. Mr. Sadek is the Qualified Person for the purposes of the AIM Guidance Note on Mining, Oil and Gas Companies dated March 2006. Mr Sadek has a Bachelor of Engineering (Mining) from the University of Sydney and is a member of the AusIMM and SME. He has over 20 years of international experience in mining.


Uruguay Mineral Exploration Inc. 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 Uruguay (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.

Uruguay Mineral Exploration Inc. is quoted in Canada (TSXV) and London (AIM) and Collins Stewart Limited is the Nominated Adviser and broker.

The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this news release.

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