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

Uruguay Mineral Exploration Inc.

October 12, 2006 09:01 ET

Uruguay Mineral Exploration Inc.: Results for the Quarter Ended August 31, 2006

LONDON, UNITED KINGDOM--(CCNMatthews - Oct. 12, 2006) - Uruguay Mineral Exploration Inc ("UME" or the "Company") (TSX VENTURE:UME) (AIM:UGY)today announces its financial results for the quarter ended August 31, 2006.

Highlights for the quarter ended August 31, 2006 include:

- Gold production of 19,175 ounces at an average cash cost of $US 332 per ounce compared to 25,163 ounces at an average cash cost of $US 212 in the corresponding period of the prior financial year. Production levels were lower than expected due to delays in accessing higher grade ore in the Arenal pit. A new pod of ore was discovered and developed during the quarter at the intersection of the South Vein and San Gregorio East. This zone will provide additional flexibility in ore scheduling over the remainder of the financial year.

- Net profit after tax of $ 2,567 or $ .054 basic earnings per share compared to $ 2,240 or $ .048 basic earnings per share in the corresponding period of the prior financial year.

- Cash flow from operations was $ 3,503 before non-cash working capital movements. This compares to 4,189 in the same period last year.

- Sales were $ 12,177 and the average price of gold sold was $ 568 per ounce compared to $ 11,721 at an average price of $ 432 in the corresponding period of the prior financial year.

- George Schroer was appointed as Vice President of Exploration and has recruited two new experienced gold geologists to focus on advanced exploration projects.

- The next phase of the program to define resources at Argentinita has continued to return encouraging results including:



RCARG 165 15m @ 3.30 g/t Au from 103m
RCARG 170 7m @ 4.14 g/t Au from 154m
DHARG-02 4.20m @ 3.99 g/t Au from 143.4m
DHARG-03 8.05m @ 3.02 g/t Au from 177.2m

- A drill program of 26 drill holes at Crucera has confirmed
mineralization associated with the shear zone and has demonstrated
that the mineralization is open to the south and down dip. Highlights
of the drill program are presented below.

RC-CA-01 5m @ 3.73 g/t Au from 40m
RC-CA-02 8m @ 7.05 g/t Au from 45m
RC-CA-08 9m @ 2.72 g/t Au from 48m
RC-CA-09 5m @ 3.18 g/t Au from 47m
RC-CA-10 4m @ 2.95 g/t Au from 56m
RC-CA-18 4m @ 12.41 g/t Au from 50m
RC-CA-23 15m @ 2.94 g/t Au from 28m
RC-CA-24 13m @ 3.98 g/t Au from 26m


ENDS

Editors note: 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 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.

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



Uruguay Mineral Exploration Inc.
Consolidated Interim Financial Statements
For the three month period ended August 31, 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
August 31 2006.


Contents
------------------------------------------------------------------------
Consolidated Interim Financial Statements
Consolidated Balance Sheets 2
Consolidated Statements of Income and Retained Earnings 3
Consolidated Statements of Cash Flows 4
Notes to Consolidated Financial Statements 5 - 15



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


As at
--------------------------------
August 31, May 31,
2006 2006
------------------------------------------------------------------------
$ $
Assets
Current assets
Cash and cash equivalents 8,545 8,931
Accounts receivable 2,187 1,699
Inventories 8,977 8,108
Prepaid expenses and other 633 612
--------------------------------
20,342 19,350

Property plant and equipment (Note 2) 23,145 22,896
Deferred exploration (Note 3) 12,560 11,184
Future income tax assets 1,629 1,855
Other non current assets and deferred
costs (Note 4) 4,975 4,723
--------------------------------
Total assets 62,651 60,008

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

Liabilities and Shareholders' Equity

Current liabilities
Accounts payable and accrued liabilities 5,475 5,076
Provision for dividends 1,485 -
Current portion of long term debt
(Note 5) 1,611 2,058
Unrealized fair value of derivatives
(Note 10) 1,070 2,317
--------------------------------
9,641 9,451

Future income tax liabilities 1,486 1,486
Long term debt (Note 5) 1,220 2,167
Asset retirement obligation 1,665 1,665
--------------------------------
Total liabilities 14,012 14,769
--------------------------------

Equity instruments (Note 6) 34,134 32,858
Contributed surplus (Note 7) 2,667 1,625
Cumulative translation adjustment (19) (19)
Retained earnings 11,857 10,775
--------------------------------
Total shareholder's equity 48,639 45,239
--------------------------------

Total liabilities and shareholder's
equity 62,651 60,008
------------------------------------------------------------------------

Approved by the Board of Directors

"David Fowler Director "Tony Shearer" Director



Uruguay Mineral Exploration Inc.
Consolidated Statements of Income and Retained Earnings
(Unaudited)
(Thousands of United States Dollars, except for earnings per share
an weighted average number of shares outstanding)


Three months ended
August 31 August 31
----------------------------------
2006 2005
------------------------------------------------------------------------
$ $

Sales 12,177 11,721
Net profit interest - (306)
----------------------------------
Net sales 12,177 11,415

Operating expenses 6,749 5,760
Amortization, depletion and accretion 2,015 1,749
----------------------------------
Operating profit 3,413 3,906
----------------------------------
Other expenses
Compensation expense - stock based 251 -
General and administrative 936 592
Fair value adjustment for derivatives (1,247) 197
Interest and financing fees 88 93
----------------------------------
28 882

----------------------------------
Income before other items and taxes 3,385 3,024

Other items
Interest and other income 91 32
Foreign exchange gain/(loss) (63) (18)

----------------------------------
Income before taxes 3,413 3,038

Income taxes 846 798

----------------------------------
Net income for the period 2,567 2,240

Retained earnings, beginning of period 10,775 192

Provision for dividends (1,485) -

Retained earnings, end of period 11,857 2,432

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

Basic earnings per share (Note 6(e)) 0.054 0.048
Diluted earnings per share (Note 6(e)) 0.053 0.046

Basic weighted average no. of shares 47,971,597 46,191,413
Diluted weighted average no. of shares 48,763,335 49,126,413

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


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


Three months ended
August 31 August 31
2006 2005
------------------------------------------------------------------------
$ $
Operating activities
Net income for the period 2,567 2,240
Adjustments for:
Amortization, depletion and accretion 2,015 1,749
Deferred Stripping (354) (795)
Future Income taxes 226 798
Fair value adjustment of derivatives (1,247) 197
Compensation expense - stock based 251 -
Other 45 -
-------------------------------
3,503 4,189

Net change in non-cash working capital
balances (Note 9) (278) 359
-------------------------------
3,225 4,548
-------------------------------

Financing activities
Proceeds from the issue of share
capital, net of issue costs 1,151 168
Payments of finance lease (32) -
-------------------------------
1,119 168
-------------------------------

Investing activities
Refundable deposits 0 -
Net proceeds from sale of assets 45 300
Purchase of property, plant and
equipment (3,399) (2,695)
Payments for deferred exploration and
development (1,376) (440)
-------------------------------
(4,730) (2,835)
-------------------------------

Increase in cash and cash equivalents (386) 1,881

Cash and cash equivalents, beginning of
period 8,931 5,501
-------------------------------

Cash and cash equivalents, end of
period 8,545 7,382

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


Uruguay Mineral Exploration Inc.
Notes to Consolidated Interim Financial Statements
(Unaudited)

(Thousands of United States Dollars, except where indicated)

August 31, 2006
------------------------------------------------------------------------

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, 2006 for detailed note disclosures. The significant accounting policies follow that of the most recently reported annual consolidated financial statements.

(a) Deferred Stripping Costs

Effective October 1, 2004 as a result of developing a complete mine plan for the Arenal deposit the Company adopted the industry practice of deferring stripping costs. Previously the company had expensed these costs as it could not reasonably estimate the life of mine strip ratio for deposits being mined.

Using the deferred stripping accounting method mining costs associated with waste rock removed in excess of the life of mine average are deferred and charged to operations on the basis of the average strip ratio for the life of the mine. When the cumulative strip ratio is less than the life of mine average, a provision for future stripping is made.

The average strip ratio for the mine life was estimated to May 31 2006 to be 4.34:1. During the period the strip ratio was revised to 5.59:1.

The amount charged to operating costs is therefore subject to management's ability to estimate the stripping ratio over the life of mine. Any changes to this estimate could have a material affect on the financial statements.

The waste to ore ratio and the remaining life of the mine are both regularly assessed by management to ensure the carrying value and rates of depletion are appropriate.


The accompanying notes are an integral part of these consolidated interim financial statements



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

2. Property, Plant and Equipment

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

August 31, 2006
----------------------------------------------------
Cost Accumulated Net Book
Amortization Value
and Depletion
---------- --------------------- ------------------
Land and lease
rights $ 1,895 $ - $ 1,895
Plant and equipment 21,563 8,613 12,950
Mineral Properties 13,857 5,557 8,300
---------- --------------------- ------------------
$ 37,315 $ 14,170 $ 23,145
---------- --------------------- ------------------
---------- --------------------- ------------------

May 31, 2006
----------------------------------------------------
Cost Accumulated Net Book
Amortization Value
and Depletion
---------- --------------------- ------------------
Land and lease
rights $ 1,895 $ - $ 1,895
Plant and equipment 20,362 7,474 12,888
Mineral Properties 13,218 5,105 8,113
---------- --------------------- ------------------
$ 35,475 $ 12,579 $ 22,896
---------- --------------------- ------------------


(a) During October 2005, the Company acquired the 10% net profit interest over key tenements within the Minas de Corrales project, including the tenement on which Arenal deposit is located. This agreement terminates UME's obligation to pay the NPI holder 10% of the net profits derived from gold produced from the NPI area as part of the acquisition of the tenements. An amount of $ 3,500 is shown under mineral properties and is amortized using the unit of production method based on the estimated life of mine. Another $ 383 is included under Deferred Exploration and is not being amortized as they are related to key tenements in exploration areas with no determined resources.

(b) 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 $ 835 (May 2006 - $782) of spare parts that are amortized over 5 years. Included in mineral properties is $ 1,994 (May 2006 - $1,355) of mine development costs that have not yet been amortized as these are pre-stripping and development costs for deposits from which production has not commenced.



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

3. Deferred Exploration and Development Costs

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

August 31, May 31,
2006 2006
-------------- -------------
Acquisition costs and option payments $ 775 $ 775
Exploration, development and other
property costs 10,089 8,853
Capitalized indirect overheads, net of
exchange gains 1,696 1,556
-------------- -------------
$ 12,560 $ 11,184
-------------- -------------


(a) The Company has the right to purchase shares of a Uruguayan company, Davinco S .A (Presidente Terra project) pursuant to an agreement dated May 14, 1997. The terms of this purchase are as follows:



i) 80% of DAVINCO SA issued shares for the amount of $750, payable in
installments. $475 has been paid up to November 30, 2001. The balance
of installments is due as follows:


Installment Due date
----------- ---------
$ 275 Within 5 days after the issue of a feasibility study
on mineral properties held by DAVINCO SA.

ii) 20% of DAVINCO SA total shares, once the 80% has been acquired and
provided a decision has been made to continue mineral exploration, at a
variable price depending on the productive potential.


(b) 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 August 31, 2006 were approximately $ 1,343 (May 2005 - $ 1,390). 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 letter of credit provided by Macquarie Bank of $1,500.



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

4. Other Non Current Assets and Deferred Costs

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

August 31, May 31,
2006 2006
------------ -------------
Refundable deposits $ 140 $ 140
Capitalized debt issue costs 44 145
Deferred stripping (Note 1(a)) 4,791 4,438
------------ -------------
$ 4,975 $ 4,723
------------ -------------
------------ -------------


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

5. Long Term Debt

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


August 31, 2006 May 31, 2006
----------------- ---------------
Drawn debt facilities
Deferred payment on equipment (a) $ 510 863
Deferred payment on acquisition of
Net Profit (b) 1,900 2,905
Finance lease (c) 421 457
----------------- ---------------
2,831 4,225
Less non current portion (1,220) (2,058)
----------------- ---------------
$ 1,611 2,167
----------------- ---------------
Available debt facilities
Working capital facility (d) $ 2,000 2,000
Finance Lease (c) 43 43
----------------- ---------------
$ 2,043 2,043
----------------- ---------------


(a) On 15 June 2005 a subsidiary of the Company signed a sale and purchase agreement to purchase $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.

(b) 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 (5a). 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 recorded at their net present value using an 8.5% discount rate. First convertible note expired in July, was paid in cash and was not converted into shares.

(c) On May 31, 2006 a subsidiary of the Company signed a financial lease facility agreement of $ 500 with ABN AMRO N.V. Sucursal Montevideo for the purchase of light vehicles . The facility is payable in equal monthly installments over a three year period at 180 days LIBOR plus 2.5% rate of interest. As at 31 May 2006, $ 457 has been drawn under this facility.

(d) On August 8, 2004, the Company entered into a secured $2,000 interim working capital facility with Macquarie Bank Limited. On October 26, 2004 this interim facility was increased to $3,000. 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. The working capital facility expired in September 2006 and the environmental bond facility in December 2006.



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

6. Equity Instruments

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

(a) Authorized
----------
Unlimited number of Common Shares

(b) Issued
------

Common shares August 31, 2006 May 31, 2006
------------------------------------------------------
Number Number
(000s) Amount (000s) Amount
------------------------------------------------------
Issued and
outstanding,
beginning of
period 47,525 $ 33,595 46,107 $ 30,308
Issued for stock
options exercised 280 451 1,077 1,951
Issued for net
profit interest
acquisition
(note 6(c)) - - 290 1,096
Issued for
exercise of
warrants for
cash 250 1,013 - -
Issued for
mine property
acquisition - - 51 240
------------------------------------------------------
Issued and
Outstanding 48,055 $ 35,059 47,525 $ 33,595
Less: cumulative
share issue
costs (1) - (925) - (925)
------------------------------------------------------
Balance, end of
period 48,055 $ 34,134 47,525 $ 32,670
------------------------------------------------------
------------------------------------------------------

Warrants &
convertible notes August 31, 2006 May 31, 2006
------------------------------------------------------
Number Amount Number Amount
------------------------------------------------------
Issued and
outstanding,
beginning of
period 1,000 $ 188 250 $ 188
Issued for net
profit interest
acquisition
(note 6(c)) - - 750 -
Expired (250) - - -
Exercised (250) (188) - -
------------------------------------------------------
Issued and
outstanding,
end of period 500 0 1,000 $ 188
------------------------------------------------------
------------------------------------------------------

Total equity
instruments $ 34,134 $ 32,858
------------------------------------------------------
------------------------------------------------------

(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) and 5(b). Pursuant to this agreement the Company issued three convertible notes that provided the holder with the option to convert the note, with a face value of $ 1,050 into 250,000 ordinary shares. The note may 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 $ Expiry date
conversion of promissory note
------------------------------------------------------------------------
250,000 4,20 July 30, 2007
250,000 4,20 July 30, 2008


The first convertible note expired in July 30, 2006 and was not exercised.

At August 31, 2006, the Company has nil (May 31, 2006-250,000) warrants outstanding.

(d) Employee Stock Options

The Company has an option Plan for its officers, directors, employees and consultants of the Company and its subsidiaries. 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-Sholes option pricing model with the following assumptions: Dividend yield (Nil) (2005 - Nil), expected volatility (60%) (2006 -- 60%), risk-free interest rate range of 3% (2006 -- 3%), and weighted average life of 3.0 years (2006 -- 3.0 years). During the period $ 251 (August 31, 2005 $ nil) of compensation expense was recorded. At August 31, 2006 the aggregate unamortized fair value of unvested stock options granted amounted to $ 812 (2006 - $ 722).

The following table summarizes information regarding the Company's outstanding options as at August 31, 2006:



Weighted
Number of Option Price per Average Exercise
Shares Share Range Price
(000's) CDN $ CDN $
----------------------------------------------------
Balance at
beginning of period 2,567 $ 0.40 - $5.50 $ 3.03
Options - granted 631 $ 4.77 - $5.29 $ 5.12
Options - exercised
or cancelled (280) $ 0.75 - $1.5 $ 1.29
---------
Balance at end of
year 2,918 $ 0.40 - $5.50 $ 3.64
---------
---------



The following table summarizes information about the stock options
outstanding at May 31, 2006:


Outstanding Exercisable
--------------------------------------------- ----------------------
Weighted Weighted
Option average Remaining average
Options price Exercise Price Life Options Exercise Price
000s CDN $ CDN $ Years 000s CDN $
--------------------------------------------- ----------------------
270 $ 0.40 $ 0.40 0.5 270 $ 0.40
15 $ 0.75 $ 0.75 1.6 15 $ 0.75
548 $ 1.50 $ 1.50 2.0 548 $ 1.50
104 $ 3.00 $ 3.00 2.7 104 $ 3.00
60 $ 3.40 $ 3.40 2.8 60 $ 3.40
200 $ 4.00 $ 4.00 2.6 200 $ 4.00
20 $ 4.10 $ 4.10 4.9 20 $ 4.10
763 $ 4.50 $ 4.50 4.0 - $ 4.50
68 $ 4.62 $ 4.62 4.2 - $ 4.62
190 $ 4.77 $ 4.77 4.8 - $ 4.77
421 $ 5.29 $ 5.29 4.8 421 $ 5.29
200 $ 5.40 $ 5.40 3.2 200 $ 5.40
59 $ 5.50 $ 5.50 4.6 - $ 5.50
------- -------
2,918 1,838
------- -------
------- -------



(e) Earnings per share

The reconciliation of basic and diluted earnings per share where
relevant are as follows:


August 31, August 31,
2006 2005
--------------- ---------------
Basic earnings per share

Numerator
Net earnings available to
shareholders $ 2,567 $ 2,240
Denominator
Weighted average earnings per share 47,971,597 46,191,413
Basic earnings per share
(cents per share) 0.054 0.048

Diluted earnings per share

Numerator
Net earnings available to
shareholders $ 2,567 $ 2,240
Denominator
Weighted average
shares outstanding 47,971,597 46,191,413
Potential net incremental issue
of shares from warrants - 250,000
Potential net incremental issue
of shares from stock options 291,738 2,685,000

Potential net incremental issue
of shares from convertible notes 500,000 -
--------------- ---------------

Shares outstanding plus assumed
conversions 48,763,335 49,126,413

Diluted earnings per share
(cents per share) 0.053 0.046

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

7. Contributed Surplus

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

The following table summarizes the movements in contributed surplus for
the period ended August 31, 2006.


August 31, 2006 May 31, 2006
------------------------------------
Balance at beginning of year $ 1,625 $ 1,577
Stock based compensation 1,166 536
Transfer on exercise of options (124) (488)
------------------------------------
Balance at end of year $ 2,667 $ 1,625
------------------------------------
------------------------------------


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

8. Segment 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 mine 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.



August 31, 2006
Gold Exploration Corporate Total
---------------------------------------------------
For three months
ended
Net Sales 12,177 - - 12,177
Amortization and
depletion (2,015) - - (2,015)
Net income (loss) 3,385 (509) (309) 2,567

As at 31 August 2006
Property, plant and
equipment 21,556 354 1,235 23,145
Deferred exploration
and development 2,409 10,151 - 12,560



August 31, 2005
Gold Exploration Corporate Total
---------------------------------------------------
For three months
ended
Net Sales 11,415 - - 11,415
Amortization and
depletion 1,749 - - -
Net income (loss) 2,464 (31) (193) 2,240

As at 31 May 2006
Property, plant and
equipment 21,384 277 1,235 22,896
Deferred exploration
and development 1,677 9,507 - 11,184


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

9. Supplementary Cash Flow Information

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

(a) The net change in working capital items is as follows:

Three months ended
August 31 August 31
2006 2005
------------------------------------------------------------------------
Prepaid expenses and other $ (116) $ (55)
Accounts receivable (488) (265)
Accounts payable and accrued liabilities 1,259 652
Inventory (933) 27
-----------------------------
Net change in non-cash working capital
balances $ (278) $ 359
-----------------------------
-----------------------------

(b) Other information

Cash interest paid $ - $ -
Cash taxes paid 28 139

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

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 manages its exposure to these risks by operating in a manner that minimizes its exposure to the extent practical.

(a) Commodity Price Risk

The Company uses financial derivatives to mitigate the effect of certain risks that are inherent in its business. As at August 31, 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.

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 to participate in price appreciation.

The fair value of these contracts is noted below. The net values of these contracts have been recorded as a liability.



Asset/(liability) August 31, May 31,
2006 2006
-----------------------
Spot deferred $ (350) $ (220)
Gold call options (720) (2,097)
-----------------------
$ (1,070) $ (2,317)
-----------------------
-----------------------


The Company has entered into put option contracts on 10,000 ounces at a forward price of $ 436 per ounce. To cover the cost of the put option contracts the Company has sold call options contracts on 10,000 ounces at a forward price of $ 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. At the end of the period 5,000 ounces of this contract remain to be delivered and 2,500 ounces have been rolled into a spot deferred contract.

(b) Currency risk

The Company's cash balances are held principally in US dollars in a Canadian bank, while its expenses are incurred in Uruguay pesos as well as US dollars and other currencies. The Company reports its results in United States dollars. There would be an adverse impact on the reported results if the following situations arise:

(i) The Uruguay inflationary impact on the peso expenses increases at more than the depreciation of the Uruguay peso against the United States dollar. This would result in an increase of the peso-based expenses.

(ii) The United States dollar depreciates against the Uruguay peso. This would reduce the available cash resources and increase the related expense.

A significant portion of the Company's operations are located in Uruguay, and are subject to fluctuations in exchange rates. The Company manages its currency rate risk by denominating its contracts and commitments, where possible, in US dollars.

(c) Credit risk

The Company enters into financial agreements (financial instruments) with major international banks and other international financial institutions in order to manage underlying revenue and future cash flow exposures arising from commodity prices. Financial instruments, which subject the Company to concentrations of credit risk, consist primarily of cash, accounts receivable and securities.

(d) Fair value risk

The carrying amount of cash, accounts receivable and current liabilities approximate their fair value due to the short -term maturities of these instruments. The fair value of the Company's debt is approximated by its carrying value due to its floating interest rate.

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

Contact Information