CGM.L Regulatory News (CGM)

21 Dec 2007 07:01

China Goldmines PLC21 December 2007 21 December 2007 China Goldmines plc ("China Goldmines" or the "Company") Preliminary results for the year to 30 June 2007 China Goldmines plc (AIM: CGM), the gold resources company focussed on thediscovery and development of gold projects in the Hunan Province of China,announces its preliminary results for the year ended 30 June 2007. Highlights • Net current assets for the Group at year end were US$2,137,000. • Losses for the year were (US$1,965,779) being (US8.38cents) per share. • In April 2007, through its subsidiary Hunan Westralian Mining Co., Ltd, China Goldmines entered into an agreement with the Peoples Government of Yuanling County to transfer 100% of the 8 existing gold mines at the Shenjiaya Prospect to Hunan Westralian Mining Co., Ltd for £12 million. Post-period Highlights • On 7 November 2007 all eight producing gold mines in the Shenjiaya Prospect were successfully transferred into the Company's possession and control. • In October 2007 shareholders approved the placing of 25million ordinary shares at 120pence per share to raise £30million (approx US$60m). Operational Highlights • China Goldmines has undertaken its exploration and pre-feasibility strategy by mapping, sampled underground mine exposures and drilled mineralised structures. • The Company has commenced the consolidation and development of the 8 gold mines to become an immediate gold producer for the coming year. • 6800 metres of surface diamond drilling delivers mineralisation and alteration in 15 of the 18 drilled holes. Significant results: ZK 4501 0.70m @ 9.64 g/t Au ZK 03 0.75m @ 68.75 g/t Au 2m @ 48.45 g/t Au ZK 601 2.3m @ 15.45 g/t Au ZK 1001 1.45m @ 17.86 g/t Au • High-grade underground samples show results of between 13 g/t Au and 130g/t Au, and a second phase of mill feed sampling (Run of Mine Ore) for thecurrent producing mines showed results from 0.5 g/t Au to 77 g/t Au. • In July 2007 the Company received the independent geological report by AIMaynard & Associates estimating a JORC Code compliant inferred resource estimateof approximately 5.1 million tonnes at 11 g/t containing 57,000 kg of goldequivalent to 1.83m oz for the Company's Shenjiaya project. This estimate onlycovers less than 20% of the strike length limited to 300m depth from surface andtherefore their report states that the Guanzhuang Project has reasonablepotential for a further four to six times the current resource still to beidentified. Frank Vanspeybroeck, CEO of China Goldmines, said: "We are making good progress at Shenjiaya, which is an endorsement of ourrevised development strategy to increase performance and output. We continue towork towards our first gold pour from our new project in the new year." The Chairman's Statement and full financial statements follow. For additional information please contact: China Goldmines plcFrank Vanspeybroeck (CEO) Mobile: +61 41 116 6276Alec Worrall +44 207 788 7621Marinko Vidovich (CFO) Mobile: +61 41 997 4744Changsha Office +86 731 515 8211Perth Operations Office +61 8 9488 8830 Brewin Dolphin Limited +44 141 221 7733(Nominated Adviser)Alan Stewart (Corporate Finance)Greig Aitken (Research) Parkgreen Communications +44 20 7851 7480Justine HowarthErica Nelson Notes to Editors China Goldmines plc listed on AIM on the 7 February 2006 as a gold resourcescompany focussed on the discovery and development of gold projects in the HunanProvince of China. The Company is preparing a feasibility study on its Guanzhuang Gold Project,where a resource of 1.8million ounces within the top 325m from surface and overa strike distance of 1.5km has been by our Joint Venture Partner, Brigade 407 ofthe Hunan Region Bureau of Geology and Mineral Resources Exploration andDevelopment. The Company's target is to further increase this resource by afactor of 4 to 6 times with a continuing exploration program. The Shenjiaya Prospect consists of eight gold mines which the Company plans toconsolidate with the aim of having a long life mining production of 150,000 ozAu/pa in the near future. At the same time as mining the existing eight mines,China Goldmines will continue to investigate the potential of the project areathat remains under explored. Chairman's Statement The Past Year The financial year ended June 2007 was a significant year for China Goldminesplc. The 7th of February 2007 marked the first anniversary of our listing on the AIMMarket of the London Stock Exchange. During the 2007 financial year a majormilestone has been achieved whereby we secured the agreement with the YuanlingCounty to transfer 100% control and ownership to China Goldmines of the 8existing gold mines in the Guanzhuang Gold Project. This was a major achievementthat within our first year, all 8 miners had signed the transfer of their mininglicence, the mining rights, mine development infrastructure, and capital fixedassets. The Government of Yuanling County agreed as part of the SupplementaryAgreement that it guaranteed that the mining licences would be transferred withall valid permits and licences to meet the requirement of land use, mining,environmental protection approval and other statutory requirements. Our long term vision is to make China Goldmines a dominant mining house insouthern central China. In the shorter term our main objective is to develop thecurrent Guanzhuang Gold Project China Goldmines PLC has made substantial progress during the year with theexploration, evaluation and purchase of 8 goldmines forming the Guanzhuang GoldProject after successfully raising further capital in October this year. The findings of the independent Geological report demonstrated the potential forestablishing a longer term underground mining operation which could provide goldproduction of 25000 oz per annum increasing to potentially 150000 oz per annum. The management team headed by the Company's CEO, Mr Frank Vanspeybroeck, whoresides in Hunan China, have been working diligently with a professional team ofexperts all based in China. During the year the Company increased its staff to 227 fulltime employees ofwhich 205 are locally based in China. The company continues to endorse westernhealth, safety and environmental policies and is working closely with the localcommunities and government to ensure that these standards are implemented andmaintained. The Company's next milestone will be commencing the transition from explorer toproducer. This will provide cash flow for the company to undertake the necessarydevelopment work to consolidate and expand the 8 gold mines and to achieve itsobjective to become a gold producer in the region. Acknowledgements Whilst the past year has been a consolidation point for the Company, there was asignificant amount of effort and energy put in by all staff, management andconsultants. I would therefore like first to thank all the staff of ChinaGoldmines for their dedicated efforts and contributions towards the considerableprogress made by the Company and secondly, I would like to acknowledge the inputand effort of my fellow board members for their effort, support and team work ingetting many of the key milestones finalised. Finally I would like to thank ourshareholders for their continuing interest and support in China Goldmines Plc. Clive DonnerChairman21 December 2007 Operations Overview 1. Project Overview 1.1 Guanzhuang Gold Project The Guanzhuang Gold Project is located in the Guanzhuang mineral field of HunanProvince, China (Fig 1). The project currently covers approximately 38.5km2centred some 9km to the east of the operating Woxi Gold Mine that has attributedgold resource of almost 50t (1.61 Moz) along with antimony and tungsten credits.Exploration is currently focussed on the Shenjiaya and Xiaotaoyuan Prospects. Mining within the southern CGM project area is currently confined to theShenjiaya Prospect, which is a significant mineralised structure held underfragmented ownership by artisanal miners. The Xiaotaoyuan Prospect is located5km north of Shenjiaya within the northern portion of the project area (Fig 2). The Guanzhuang Project is serviced by the sealed Highway 319 that traverses theproject tenements. Grid power parallels Highway 319 and water is readilyavailable from numerous large streams and rivers within the immediate area. Thetopography is characterised by low mountain ranges, typically between 200m and800m above sea-level, the highest elevation is 850m. The climate is a temperatemaritime to continental regime, with an average winter temperature maximum of4.6degreesC and an average summer temperature maximum of 28degreesC. The regionis relatively sparsely populated, principally comprising numerous subsistencefarming communities. 1.2 Tenure The Guanzhuang Project comprises two Exploration Licences with EL4300000730183(Shenjiaya) in the process of being increased in size and 8 Mining Licences. Thelicences collectively cover an area of approximately 38.5km(2) as shown in Table1. Table 1: Guanzhuang Project Tenement ScheduleTenement Number Tenement Holder Area (km2)EL 4300000730183 Brigade 407 20.74 (Transfer Agreement to HWM approved)EL 4300000730078 Sinochem 14.14 (Transfer Agreement to HWM approved)ML 4300000720389 HWM Co., Ltd. 0.44ML 4300000720393 HWM Co., Ltd. 0.19ML 4300000720385 HWM Co., Ltd. 0.32ML 4300000720387 HWM Co., Ltd. 0.28ML 4300000720386 HWM Co., Ltd. 0.12ML 4300000720388 HWM Co., Ltd. 0.24ML 4300000720392 HWM Co., Ltd. 0.95ML 4300000720391 HWM Co., Ltd. 1.12 2. Corporate Review Following initial exploration the board of Hunan Westralian Mining Co., Ltd, awholly owned subsidiary of CGM, (the Joint Venture Company), decided to developthe project as described in the Joint Venture contract and on 23 July 2006Brigade 407 and China Chemical agreed to transfer the Exploration Licences tothe Joint Venture Company. When the Joint Venture Company decides to mine insidethe Exploration Licences, Brigade 407 and China Chemical can contributeexpenditure on a pro-rata basis to retain their 20% interest, elect not tocontribute towards expenditure and thereby dilute to a minimum 10% interest orsell their 20% ownership to the Joint Venture Company with CGM retaining thefirst right of refusal, subject to agreement on price. When the Joint Venture Company decided to proceed and mine the 8 mining licenceareas an agreement was entered into with the People's Government of the YuanlingCounty on the 10 April 2007 to acquire a 100% interest in the 8 mining licences.Any mining by the Joint Venture Company in the area covered by this agreement isfor the benefit of Westralian Resources Pty Ltd directly rather than the JointVenture Company. On the 26 June 2007, the Company finalised and executed all 8transfer agreements with each individual miner owner and subsequently tookpossession of the 8 gold mines on 1 November 2007. 2.1 Management/Administrative Upgrade The Company has placed all key operational management positions; geological,engineering, mine processing, development and administration with western miningspecialists (contracted for services rendered in China). The Company has secured new corporate leased premises to cater for the growth incorporate staff in our Changsha office located now at the SouthJiasheng-Aomeicheng Building, 262 West Laodong Road, Changsha (city centre). The Company has secured a new operation site office to cater for future growthin Guanzhuang by leasing an office block which will house all geological, miningengineers, mine operators and administration staff. The office site isstrategically positioned whereby it is in Guanzhuang Township and only minutesaway from the mine sites. The Company has negotiated the lease on the two hotels adjoining the officeblock which will accommodate all mine operation staff. The hotel serves as apractical and economical solution that logistically improves operationefficiency. In the coming year the Company plans to:- - Upgrade IT hardware and bandwidth to cater for growth and meet western standards; - Install specialised western mining software applications; - Adopt western style mine communication systems; - Improve the co-ordination of all data and information between the 8 gold mines to our site office and Changsha office. 3. Exploration Review During the period China Goldmines plc continued its exploration programincluding the commencement of surface diamond drilling, survey and undergroundchannel sampling of all accessible underground mine workings, monitoring thegrade of " Run of Mine " mill feed from the current production mines andreconnaissance surface geological mapping to validate portions of previousgeological mapping. Drilling During the period 1 July 2006 to 30 June 2007, the Company completed over 6800metres with 18 drill holes, mineralisation/alteration was intersected in 15 ofthe drill holes. Trenching Completed 25 costeans from 1 July 2006 to 30 June 2007, intersected alterationin all the trenches with the alteration zones being wide and continuous. Theresults will be used to assist in the follow up drilling programme in the comingyear. Surface Mapping Total surface mapping of the Shenjiaya prospect to date is 22km2 usually at alarge scale 1000 or 5000. The surface rock chip samples assay demonstrate theprospective nature of the project area. A number of surface chip samples haveindicated a possible new mineralised zone a kilometre to the south of theShenjiaya mineralisation to be tested in the coming year. Underground Sampling The 8 gold mines have continued to be mapped by Brigade 407, resulting in atotal of 1100 metres of mapped underground workings with 12200 metres ofcompleted surveys. The mapping has generally been carried on large scale (1:500,1:1000 and occasionally 1:100 ) which will be supplemented in the future withsmaller scale mapping (1:50), more suited for understanding the structuralcomplexity of the geology. Additional underground channel sampling of the quartz veins in the lower levelsof the Shenjiaya, Zhengjiashan, Baomuyuan, Jinzhuwan and Xianglu has beenundertaken. All samples are now assayed by the acid digest AA finishmethodology, by the accredited Hunan Institute of Mineral Resources Laboratorylocated in Changsha. These values continue to support and confirm previous highgold values from underground sampling conducted at Shenjiaya and Zhengjiashan byBrigade 407. Significant assay values for Shenjiaya, Baomuyuan, Xiaochongzi,Zhengjiashan and Xianglu are tabulated below. Shenjiaya Baomuyuan Xiaochongzi Underground Assays at 355m below Surface Grade Sample (g/t Au) Width ( m )10.8 2.1611.8 2.3540.8 1.9 Zhengjiashan Underground Assays at 355m below Surface Assay Sample (g/t Au) Width ( m )13.1 1.7 Xianglu Underground Assays at 355m below Surface Assay Sample (g/t Au) Width ( m )29.3 1.3720.7 1.33 Jinzhuwan Underground Assays at 355m below Surface Assay Sample (g/t Au) Width ( m )62.0 1.628.3 0.9038.8 0.75108.0 0.80130.0 0.7070.0 0.60 ROM Sampling A second phase surface of mill feed sampling, Run of Mine Ore (ROM), for thecurrent producing mines were also completed. There was no change to the programmethodology, the collection of a daily bulk composite sample obtained by thecollection of two standard shovel loads of minus 5mm diameter sized materialfrom each ore wagon. The composite sample was then reduced by conventional coneand quarter method to produce a 2 kg sample for assay. Assays were done at theWoxi Mine laboratory, by the fire assay method. They show a wide range ofvalues. Examination of the sampled material shows that there is a dilutionfactor, i.e. the presence of wall rock material is a function of blasting, thuscausing some of the lower grade values. Furthermore none of these miningoperations practice grade control procedures. The results of this second phase of sampling are below. Mine Sample Period No. of Dates Sample Ave Grade Samples Sampled Range g/t Au Shenjiaya Stage 2 (29 days) 29 16/4/06 to 31/04/06 0.5-29.8 5.02Baomuyuan Stage 2 (23 days) 23 17/4/06 to 8/05/06 0.5-77.0 10.11Zhengjiashan Stage 2 (28 days) 28 20/4/06 to 8/05/06 0.5-20.5 8.77 Independent Geological Report (IGR) The following information is extracted from the Independent Geological Report.This summary is not complete and reliance cannot be placed upon this executivesummary in isolation of the full report which is available in the Company'swebsite: www.chinagoldmines.com. Background A subsidiary of CGM, Westralian Resources Pty Ltd, has signed a CooperativeJoint Venture Contract ('JV') with Brigade 407 of the Hunan Brigade of Geologyand Minerals Resources, Exploration and Development ('Brigade 407') to explorethe Guanzhuang Gold Project in the Guanzhuang Mineral Field, Hunan Province,China. The approximately 38.5km2 project area comprises two granted ExplorationLicences, seven granted Mining Licences and one Mining Licence for which anextension is being sought. The JV grants CGM the right to earn an 80% interestin all licences via exploration expenditure of US$0.9M over a period of threeyears from 3rd August, 2005. On 23rd July, 2006, Brigade 407 and China Chemical(owner of the Xiaotaoyuan Prospect) have agreed to transfer the ExplorationLicences to the Joint Venture Company. When the Joint Venture Company decided tomine the project area, an agreement was entered into on 10th April, 2007 withthe People's Government of the Yuanling County to acquire a 100% interest in theeight mining licences. Any mining by the JV Company in the area covered by thisagreement is for the benefit of Westralian Resources Pty Ltd directly ratherthan the JV Company. On the 26th June 2007, the Company finalised and executedall eight transfer agreements subject to the successful raising of funds witheach individual miner. Geological Setting The regional geological setting is dominated by a suture zone between tworegional geological plates that 'collided' during a Mesozoic-Cainozoic tectonicevent. The suture zone is marked by an ENE trending shear zone associated with amajor regional gravity lineament, referred to as the Xing'an -Taihang- WulingGravity Gradient Belt. This gravity lineament is interpreted to reflect asignificant, deep discontinuity within the earth's crust. The principal commercial mineral deposit within the region is the Xiangxi (Woxi)gold mine that is 9km to the west of the project area. The deposit is reportedto have been mined for 120 years and comprises shear-hostedgold-tungsten-antimony mineralisation preferentially hosted by clasticsedimentary units. Production reports indicate that the Woxi gold mine has anaverage grade of 7g/t Au. Existing development is over 1,000m below surface andthe structure is interpreted to extend to at least 2,000m below surface. The2006 annual production is reported to be approximately 96,400oz Au from 420,000tof ore. Mineralisation is hosted by a series of reverse faults where thestructures intersect fold hinges and the host rocks including red calcareousslate. Individual mineralised shoots range between 30-320m in width, 180-1180min length, and contain veins that average 2m in thickness. Mineralised shootsare localised within the axis of folds and have strike lengths that arecontrolled by the occurrence of cross folds. The Guanzhuang mineral field is located along a major regional suture zone. CGMhas secured agreement to explore and mine almost the entire aerial extent of amajor flexure along this structure, including several major sub-parallelfeatures. Al Maynard and Associates considers that the structural architecturerepresented by this flexure zone is highly prospective for the localisation ofgold mineralisation. The area is also serviced by sound infrastructure,including a major highway, grid power and water, and a substantial work force ofskilled underground miners and associated support industries are locallyavailable. The project is centred on a regional NNE trending shear zone hosting variablebut high tenor gold mineralisation, associated with brittle-ductile deformationand quartz veining over intervals between 2-40m in thickness. The GuanzhuangProject consists of two defined prospect areas being the Shenjiaya and theXiaotaoyuan prospects. The major focus of CGM is the Shenjiaya Prospect that ispartially exposed and exploited by eight small operations. Production variesbetween 25-100tpd of ore per operation in places utilising cut-and-fill handstoping hauled from single incline shaft systems. Ore is processed through ajaw crusher and ball mill and gold recovered using a gravity/amalgam table.Some 70% of gold is reportedly recovered via the gravity/amalgam separation andthe remaining 30% via flotation to a sulphide concentrate. The concentrate ison-sold for cyanide treatment. No cyanide extraction is currently used on site;however, total gold recoveries are reported to exceed 80%. Available records forthe Shenjiaya Prospect indicate that production in 2006 averaged 8 g/t Au for10,000oz. Results of Exploration Work Between 2000 and 2006, the Brigade and CGM mapped, underground sampled anddrilled mineralised structures associated with the Shenjiaya Prospect. Twodominant shear-veins, continuous for over 9.5km and a number of smallersub-parallel shear-veins are associated with the majority of mineralisationwithin a structural zone up to 200m wide. Mineralisation varies in grade andthickness along the structure, occurring as shoots and panels within a zone ofalteration accompanied by lower gold values. A new potential parallel structurewithin the Guanzhuang Gold Project some 1000m to the south of the ShenjiayaProspect has been located during exploration. On Section 26 drill hole ZK2601 and to its east another three drill holesintersected up to 23.35m at 9.0g/t Au 330m below the surface, establishing thatthe geological structure demonstrates strong continuity both along strike andwith depth. The four drill holes ZK03, ZK00601, ZK01001 and ZK04501 some 300meast of the last underground workings recorded high-grade, thick ore bodyintersections. ZK03 includes an apparent thickness of 55.31m with 5.2g/t Au thatincludes 14.18m at 9.4g/t Au, 4.58m at 4.6g/t Au, 2.23m at 20.6g/t Au and 2.36mat 4.4g/t Au (Fig 12). ZK00601 includes 16.18m at 2.0g/t Au from 250.25m and4.15m at 9.8g/t Au from 282.25m. ZK01001 also intersected two zones with 2.11mat 10.4g/t Au from 337.40m and 11.57m at 7.9g/t Au from 357.01m. Full details ofall holes and intersections are presented in Table 3. Underground sampling onSection -9, (Fig 15) located approximately 200m west of Section -7 (Fig 14),includes up to 2.2m at 71.1g/t Au. Development drives have been excavated on a number of sections up to 4kmnortheast from the Shenjiaya mine. Underground channel sampling on Section 10returned 3.05m averaging 3.8g/t Au at 50m depth, and 2m at 123g/t Au and 0.30mat 157g/t Au from 150m depth, where two lodes are separated by approximately 10mof sheared material. Based on the above work, Brigade 407 and CGM geologists have outlined 29 shootswithin which average gold grades are reported to exceed 13g/t Au, withindividual grades up to 157g/t Au, developed over vein thicknesses ranging from0.76m to over 10m. The new Chinese Ore Resource Classification Systemestimation, which is promulgated by the Land & Resources Bureau of the People'sRepublic of China in 1999, uses a three-dimensional matrix based on economic,feasibility, and geological degree of confidence. The resultant classification,categorised by a three number code of the form "123" is also allocated either "resource" or "reserve" status, is in accordance with the United NationsFramework Classification which was proposed for international use (Document E/2004/37-E/ECE/1416). A modified version of the results of this estimationexercise has removed any ore blocks based on less than three points ofinformation to better represent western world estimation techniques. In additionJORC compliant estimates have been completed. Table 2. Summary range of total resource estimates Method Resource Tonnes Au (g/ Au Au (Moz) (Mt) t) (tonnes)Prospect TypeShenjiaya* China 1999 Inferred 5.47 10.8 59.4 1.91Shenjiaya* JORC Inferred 5.50 11.0 59.0 1.89 VersionShenjiaya* Modified Inferred 4.94 11.3 55.7 1.79 1999 *Without deduction of mined material of 4T at 6.0g/t Au containing 2T Au Based on the Chinese 1999 system, the JORC compliant Inferred Mineral Resourcesis estimated to contain approximately 5.1Mt at 11.0g/t Au containing 57 tonnesof gold, equivalent to 1.83Moz. Considering that the estimation only covers less than 20% of strike lengthlimited to 300m depth from surface and only considers the E-W structures, withno contribution for the gaps between the mines and no cross or parallel veinstructure considerations AM&A considers that the Guanzhuang Project hasreasonable potential for a further 4 to 6 times the current resource still to beidentified. The possible economic viability of such new resources is currentlyunknown. The simple metallurgy, utilising gravity separation of native gold and cyanidetreatment of a gold-sulphide concentrate, provides for low capital investment,processing costs and environmental risk. CGM's objective of establishing stagedunderground mining and processing operations producing in the order of between25,000 - 150,000oz of gold per annum is potentially achievable. The full report is available on the Company's website: www.chinagoldmines.com Geological Program for 2007/2008 Mineralisation remains open at depth and drilling will be aimed at extending theresource further along strike, down plunge and locating new mineralised zones.China Goldmines remains very confident that as further work is carried out inthis under explored area; significant discoveries will provide benefits forshareholders and employees for many years to come. The future program is bestsummarised below. A vigorous exploration campaign: - to better define low grade surface soil anomalies and- higher grade depth extensions- Infill drilling Underground exploration developmentContinuous mappingTrenching programs will be supplemented by:- Surface sampling and follow up drilling programs- Mobile Metal Ion (MMI) soil sampling programs Structural and mineralisation review programs will enhance targeting selectioncriteria Surface drilling program: Two Large (up to 1000m) capacity Surface Diamond Drill Rigs - Resource definition, mineralization extensions One Small (up to 100m) capacity Surface Diamond Drill Rig - Regional exploration, Blue Sky Prospecting, Exploration, sterilization Underground Drilling programs Two small (up to 150m) capacity Diamond Drill Rigs and one medium (up to 500m)capacity Diamond Drill Rig for: Review of Operations No. of Rigs Allocation Total Annual Metres*Drill RigSurface - Large 2 Resource definition 9000Surface - Small Portable 1 Regional exploration (Blue sky) 3000Underground - Small 2 Infill and grade control drilling 6500Underground - Medium 1 Infill and grade control drilling 2500 * Drilling meterage is conservative until drilling practices can be improved andoptimized. 4. Metallurgical Review The Company commissioned AMMTEC Laboratories, Western Australia to metallurgicaltest ore from the existing operating mines in CGM's Guanzhuang gold Project inHunan, China. Three samples, weighing approximately 40kg of composites of Run ofthe Mine Ore samples taken from operating mines over a 21 day campaign, weresent to AMMTEC Laboratories, for initial comminution flotation and cyanidationtest work. AMMTEC's report confirms the excellent recovery characteristics of the ore whichhave been observed at the existing processing plants. The following points werenoted: - Rougher / cleaner froth flotation (as practiced by the existing mines) gaverecoveries of better than 90% into a concentrate with a mass of less that 3% ofthe feed. - The ore is free milling and cyanidation recoveries of over 90% can beachieved. - The ore contains coarse gold particles which will be amenable to gravityrecovery (most of the gold recovery on the existing plants is by gravity). - Comminution tests indicated that the ore is moderately hard and moderatelyabrasive (as would be expected from its quartzitic nature). The average SG of the ore was 2.73, which is in line with expectations. Test work and results to date gives us further strong encouragement for theeconomic potential of this exciting gold project. Further test work will beundertaken as we move to develop these mines and commission a processing plant. 5. Geotechnical Review The Company engaged Keogh Geotechnical Consulting Group from Australia for anassessment of the ground conditions and recommendation for the ground supportregime and mining methods. The initial assessment confirms that ore bodies(lodes) are hosted within shear zones that are characterized by the presence ofquartz vein/s and strong silicification and sericitisation of the adjacentsedimentary rocks. Ground condition within the ore bodies ranges from fair togood. The shales and siltstone that form the country rocks of the deposits areappraised to range from fair to good quality rock. The report outlines the general ground support methodology that will be requiredfor the surface portals, rehabilitation of the declines and development drives,ore access and production drives, as well as review of the suitable miningmethods to be used in the future: - Cut and fill mining method - Long hole open stoping - Bench stoping - Shrinkage stoping - Combination of mining methods including cemented backfill using waste rock and tailings 6. Hydrological Review A Hydrological Report by Huaihua Municipal Resources Exploration Institute onthe Shenjiaya mining area indicated that the water-bearing rock groups in themining area have poor porosity. Groundwater exists in superficial weatheringzone and structural fracture zone, where fractures take place frequently. Inaddition, as a result of the sharply-dissected topography, groundwaterdischarges freely, which makes it easy to dewater the deposit. The minimum baselevel of erosion at mining site is 170 meters. Water filling source for thedeposit is mainly atmospheric rainfall when ore bodies above the base level areexploited. While below the base level, apart from rainfall, surface waterbecomes more important, especially at interlayer fracture zones dissected bysurface water. 7. Engineering Review and Development Outlook The Company now will undertake a three-stage development programme on top of itsexploration programme. Stage 1: Consolidation and Refurbishment (2007-2010) In the first stage of development, the Company plans to: - Upgrade and modernise the underground conditions, equipment and practices at each of the mines. - Increase the underground workforce from 300 to over 750 by the start of 2010. - Increase the underground development from approximately 120 meters per month to over 3,000 meters per month by 2009. - Construct a smelt-house with mercury retorting capable of handling all of theamalgam produced by the existing processing plants, and a smelting furnace toproduce bars of Dore metal. In addition, the Directors propose to construct ananalytical laboratory that will initially have the capacity to support allgeological sampling work as well as daily samples for, the existing plants andthe smelt-house. Stage 2: Infrastructure Development (2010) In the second stage of development, the Company plans to: - Improve the load and haul practices through mechanisation. - Make further enhancements to communications and ventilation. - Introduce more modern drilling equipment to increase productivity. - Construct a processing plant linked underground to all eight of the goldmines. It is the Directors' expectation that they may require additional finance(which may be equity or debt) to complete the construction of the processingplant. Stage 3: Mechanised Mining (2011 onwards) In the final phase of development, the Company plans to: - Move to mechanised mining at the same time as continuing the levelexploration along the strike length of the ore body and continued verticaldevelopment to explore and prepare deeper mining blocks. - Construct a vertical haulage shaft and locomotive haulage to undergroundcrusher and loading stations. The consolidation of the gold mines over the course of 4 years is targeted toachieve approximately 100,000 oz produced per year. Consolidated Balance Sheet As at As at 30 June 2007 30 June 2006 US$ US$Non-current assetsIntangible assets 2,229,976 587,551Property, plant and equipment 240,264 108,583Investments 143,641 - -------- -------- 2,613,881 696,134 -------- --------Current assetsTrade and other receivables 180,650 182,754Cash and cash equivalents 2,594,152 6,197,074 -------- -------- 2,774,802 6,379,828 -------- --------Total Assets 5,388,683 7,075,962 -------- --------Current LiabilitiesTrade and other payables (637,605) (339,093) -------- --------Total Liabilities (637,605) (339,093) -------- --------Net assets 4,751,078 6,736,869 -------- --------EquityShare capital 390,151 390,151Share premium account 6,725,683 6,725,683Foreign exchange reserve (2,952) 17,060Other reserves 61,344 61,344Retained earnings (2,871,203) (662,040) -------- --------Equity attributable to equity holders of the parent 4,303,023 6,532,198Minority interest 448,055 204,671 -------- --------Total equity 4,751,078 6,736,869 Consolidated Cash Flow Statement Year ended Year ended 30 June 2007 30 June 2006 US$ US$Net cash from operating activities 4 (2,330,530) (865,677) -------- --------Investing activitiesInterest received 181,969 97,859Purchase of intangible assets (1,661,454) -Acquisition of subsidiary - (186,123)Purchases of property, plant and equipment (192,902) (33,989)Purchases of equity investments (143,641) - -------- --------Net cash used in investing activities (1,816,028) (122,253) -------- --------Financing activitiesProceeds on issue of shares - 6,920,610 -------- --------Net cash from financing activities - 6,920,610 -------- --------Net (decrease)/increase in cash and cash (4,146,558) 5,932,680 equivalentsCash and cash equivalents at beginning of year 6,197,074 46,000Movement in foreign exchange rate 543,636 218,394 -------- --------Cash and cash equivalents at end of year 2,594,152 6,197,074 -------- -------- Income Statement Year ended Year ended 30 June 2007 30 June 2006 US$ US$Continuing operationsSalaries and employee benefits (619,758) (199,589)Office expenses and professional fees (1,063,710) (391,716)Consulting expenses (634,132) (194,342)Travel and accommodation expenses (325,371) (119,255)Other expenses (68,425) (70,026) -------- --------Operating loss (2,711,396) (974,928) -------- --------Other gains and losses 563,648 201,334Finance income - bank interest 181,969 97,859 received -------- --------Loss before tax (1,965,779) (675,735)Tax - - -------- --------Loss for the year (1,965,779) (675,735) -------- --------Attributable to:Equity holders of the parent (1,889,163) (657,448)Minority interest (76,616) (18,287) -------- -------- (1,965,779) (675,735) -------- -------- Earnings per share 2007 2006 US cents US centsBasic and diluted 3 (8.38) (3.99) Consolidated Statement of Recognised Income & Expenditure Year ended Year ended 30 June 2007 30 June 2006 US$ US$Loss for the year (1,965,779) (675,735)Exchange differences on translation of foreign operations (20,012) 17,060 -------- --------Total recognised income and expense for the year (1,985,791) (658,675) -------- --------Attributable to:Equity holders of the parent (1,909,175) (640,388)Minority interests (76,616) (18,287) -------- -------- (1,985,791) (658,675) -------- -------- Notes to the Financial Statements 1. General information These financial statements are presented in US dollars because that is thecurrency of the primary economic environment in which the group operates. 2. Significant accounting policies Basis of accounting The financial statements have been prepared in accordance with InternationalFinancial Reporting Standards (IFRSs). The financial statements have also beenprepared in accordance with IFRSs adopted for use in the European Union andtherefore comply with Article 4 of the EU IAS Regulation. The financial statements have been prepared on the historical cost basis exceptfor the revaluation of financial instruments. 3. Loss per share The calculation of the basic and diluted earnings per share is based on thefollowing data: Earnings Year Ended Year Ended 30 June 2007 30 June 2006 US$ US$Earnings for the purposes of basic and diluted earnings (1,889,163) (657,448)per share being net profit attributable to equity holdersof the parent Number of sharesWeighted average number of ordinary shares for the 22,549,995 11,835,882 purposes of basic and diluted earnings per share Earnings per share Year Ended Year Ended 30 June 2007 30 June 2006 US cents US cents(Loss) Earnings per share (8.38) (3.99) 4. Notes to the cash flow statement Year Ended Year Ended 30 June 2007 30 June 2006 US$ US$Loss for the year (2,711,396) (974,928)Adjustments for:Depreciation of property, plant and equipment 61,221 9,806Amortisation of intangibles 19,029 - -------- --------Operating cash flows before movements in (2,631,146) (965,122) working capital(Increase)/Decrease in receivables 2,104 (166,517)Decrease in payables 298,512 265,962 -------- --------Net cash from operating activities (2,330,530) (865,677) -------- -------- 5. Report and Financial Statements The above financial information does not constitute statutory accounts asdefined in Section 240 of the Companies Act 1985. It is based on the auditedstatutory accounts for both years, upon which the auditors have issuedunqualified audit opinions. The accounts for the year to 30 June 2007 will bemailed to shareholders shortly and will be available from the registered officeat Sandgate House, 102 Quayside, Newcastle Upon Tyne, NE1 3DX. 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