Uruguay Mineral Exploration Inc Announces Results for the Quarter and Six Months Ended November 30, 2006

2007-01-11

TSX - Toronto Stock Exchange · Gold · Canada

LONDON, January 11 /CNW/ - Uruguay Mineral Exploration Inc (TSX VENTURE:UME):

Summary of Results

-- Gold production was 20,059 ounces for the second quarter with half year production of 39,234 ounces, consistent with the revised target of 39,000 stated in the Company's November 7, 2006 press release. Production for December was 9,250 ounces; consistent with the Company's reforecast of 95,000 ounces for the full year.

-- Cash costs were $US 345 per ounce for the second quarter and $US 340 for the first half compared to $US 182 and $US 197 for the corresponding quarter and half of the prior financial year. The increase in costs comes from lower production, a higher strip ratio and unit cost increases.

-- Net profit after tax for the second quarter was $ 1,751,000 or $ 0.036 basic earnings per share with half year net profit of $ 4,318,000 or $0 .090 basic earnings per share.

-- Cash flow from operations before non-cash working capital movements was $ 3,677,000 for the second quarter and $ 7,180,000 for the first half.

-- The higher average realized gold price for the second quarter of $ 565 per ounce resulted in increased sales of $ 12,433,000 when compared to the second quarter of the prior financial year, with an average sales price of $ 456 per ounce and sales of $ 11,326,000.

-- An interim dividend of C$2.0 cents per share will be paid in April 2007.

Tony Shearer, Chairman commented: "The Board believes that Uruguay is a highly prospective country and today we have a team with the right skills and the right attitudes. The period June to September has been one of significant change and we have brought together a strong Management team under our new Chief Executive David Fowler with two new external recruits, respectively as VP of Exploration and CFO, and an internal promotion to VP of Operations. This new team has had little time to make an impact on reserves and resources as at 1st November, 2006. They have focused their effort on completing new estimates of Measured and Indicated resources using independent consultants. The decision to appoint independent consultants was taken by the new management team in July and has led to more conservative assumptions with an overall reduction in total stated reserves and resources. In the half year the new Management team has also carried out essential work which will enable us in 2007 to convert further resources into reserves, and to expand the declared resources. Exploration and development work is intense, painstaking and challenging: the team will need time to deliver results. I am confident that they will do so."

Q2 2007 Q2 2006 H1 2007 H1 2006 Operating Review Gold produced Ounces 20,059 25,323 39,234 50,486 Average cash cost US$/oz 345 182 340 197 Average price received US$/oz 565 456 566 443

Financial Review Revenue US$ '000s 12,433 11,326 24,610 23,047 Net income (loss) for the US$ period '000s 1,751 1,944 4,318 4,184 Cash flow from operations(x) US$ '000s 3,677 5,121 7,180 9,310 Basic earnings per share US$ 0.036 0.042 0.090 0.091 (x) before non-cash working capital movements

Summary of Significant Events

External consultants appointed to evaluate Reserves and Resources

Golder Associates and Mine Development Associates were appointed in July 2006 to conduct an independent evaluation of reserves and resources following the appointment of David Fowler as Chief Executive. At 1 November 2006 total reserves were 5,671,000 tonnes at 1.77 g/t (322,000 contained gold ounces) and Measured and Indicated Resources, inclusive of reserves, were 13,591,000 tonnes at 1.51 g/t (659,400 ounces). At the same date there was an Inferred Resource of 5,619,000 tonnes at 1.4 g/t (250,800 ounces). The previous disclosure as at 1st June 2005 had total reserves of 5,400,000 tonnes at 2.41 g/t (417,000 ounces) with Measured and Indicated Resources, inclusive of reserves, being 12,500,000 tonnes at 1.94 g/t (780,300 ounces). The Inferred Resource as at 1st June 2005 was 12,975,000 tonnes at 1.23 g/t (513,000 ounces). The reduction in resources relates to ore mined between June 2005 and November 2006, the use of more conservative and robust parameters relating to grades in the current resource estimates, and a significant reduction of Inferred Resources for Sobresaliente (215,000 ounces at 31 May 2005) due to new drilling and Zapuchay (115,000 ounces at 31 May 2005) where it was considered that additional exploration work is required to justify the inferred resource.

UME now unhedged

The Group is unhedged as the last hedge contract was filled in November 2006. At 30 November 2006 the Group had $ 5,802,000 of cash and $ 2,319,000 of interest bearing convertible debt.

Diversion of the Arroyo Corrales

A public hearing to evaluate the diversion of the Arroyo Corrales was completed during November 2006. Review of the project by the relevant authorities is nearing completion and the company anticipates approval of the project in the coming month. A revised project plan based on this schedule has been prepared to allow for continued ore supply from Arenal throughout 2007.

New appointments

Pablo Ferrari has been appointed to the position of Chief Financial Officer and will commence employment at UME at the beginning of February 2007. Terry Butler was promoted to the position of Operations Manager during the quarter.

Increasing Gold Resources

Drilling at Argentinita has defined an initial Indicated Resource of 1,446,000 tonnes at 1.45 g/t (68,000 ounces) and an Inferred Resource of 588,000 tonnes at 1.42 g/t (27,000 ounces). Additional step out drilling along strike and down dip is planned for the coming half to expand this resource. Mine planning in the coming half will focus on defining a reserve at Argentinita by mid 2007.

Ausenco has been appointed to evaluate process plant expansion and heap leach processing with scoping studies expected to be completed in the current quarter with metallurgical testing then progressing immediately thereafter. Golder Associates has been appointed to evaluate the potential for underground mining.

A detailed ground magnetic survey covering the western portion of the Isla Cristallina, including the San Gregorio and Argentinita districts, and an evaluation of the structural setting will be used to more effectively target exploration activities in the San Gregorio/Arenal and Argentinita/Zapucay districts in the coming half.

A detailed ground magnetic survey at Casupa has identified extensions to the structure to the North-West and South East of the previously drilled mineralization. The next phase of drilling to confirm the extent of mineralization along this structure will commence during the third quarter.

During the quarter the Company applied for a claim over the Mahoma property in the Florida Belt. This property previously produced approximately 68,000 tonnes at 7g/t grade between 1992 and 1996. There are currently four known quart veins at Mahoma, the largest of which extends for approximately 1,000 metres. Evaluation of the project will commence in the second half.

Non-gold exploration

Stratigraphic drilling has commenced at the Lascano project with the first hole at 530 metres. No mineralization has been encountered to date. Completion of the first hole and the drilling of two more holes, together with modeling of the results is expected to be reported in the third quarter report to be released in mid April.

Chairman's Statement

Our half-year results to 30 November 2006 report a similar profit to the prior financial year, but are attributable to higher average sales prices from lower production during the half. Our December production of 9,250 ounces confirms that we are on track to lift our production in the second half to achieve the full year reforecast of 95,000 ounces. We filled the last open hedge contract in November, and the Company is now unhedged with no net debt.

Reconciliation of Cash Costs H1 2007 to H1 2006 $US/Ounce Cash cost per ounce H1 2006 $197 Change in strip ratio $20 Other cost increases $47 Cash cost before impact of lower grades $264 Reduced production from lower grade 76 Cash cost per ounce H1 2007 $340

Operating costs have increased to $340 for the half-year compared with $197 for the corresponding prior year period. A reconciliation of the variance between the two cash cost numbers is shown above. This demonstrates that $76 of the cost increase for the half was attributable to lower production of 39,234 ounces resulting from lower grades, and that the higher strip ratio being used in the current financial year accounts for the remaining difference, along with other cost increases that are further discussed in the Group's Management Discussion and Analysis for 30 November 2006.

Our Strategy

The company has redefined its strategy to focus on creating shareholder value through growing gold production. Initially we aim to maintain production at approximately 100,000 ounces per annum, and then to grow into a mid-tier gold producer over five years. Setting these objectives means that we are now focused on the key challenge of increasing gold reserves, through successful exploration and alternative mining and processing methods. Accordingly, we have put in place plans to farm out or divest our base metals and diamond prospects going forward.

We have prepared data packages for the base metal projects and sent these out to interested parties. Between now and March 2007 we will be assessing the level of interest and deciding how to progress these opportunities. Additional work on the most prospective of our diamond areas is planned for the current quarter and we are following a similar approach of looking for a farm in partner.

Senior Management Changes

Over the past six months, UME has made significant changes to its management team with a younger, committed team ready to take the Company to the next stage of its development. David Fowler was appointed Chief Executive Officer on 15 May 2006 and on 15 July 2006, George Schroer joined as Vice President of Exploration. We have recently appointed Pablo Ferrari as our new Chief Financial Officer with effect from 1 February 2007. Pablo has previously worked in senior financial positions for leading energy companies in Argentina. Terry Butler was promoted during the half year to Operations Manager, where he has assumed day-to-day control of San Gregorio, allowing John Sadek, as Vice President of Operations, to focus on our development and growth. We have now filled all the remaining vacant senior management positions with the Group.

Management and workforce

A key element in our ability to achieve our growth strategy for our gold business will be our ability to keep costs down and to train and develop our workforce to increase operational effectiveness. As a result, during the half we embarked on the first stage of a senior management training programme and completed an evaluation of workforce's skills and training needs. We have also begun to take advice from specialist industry consultants to help us improve our operating practices and to transfer skills to local managers.

Resources and reserves

Golder Associates and Mine Development Associates were appointed in July 2006 to conduct an independent evaluation of reserves and resources following the appointment of our new Chief Executive and his implementation of evaluation policies on a more conservative basis.

At 1 November 2006 UME had Measured and Indicated Resources of 13,591,000 tonnes at 1.51 g/t, equal to 659,400 contained gold ounces. This compares to 12,500,000 tonnes at 1.94 g/t equal to 780,300 ounces of contained gold announced in the last statement published as at 1 June 2005. In the same period, Inferred Resources have reduced from 12,975,000 tonnes at 1.23 g/t (513,000 ounces) to 5,619,000 tonnes at 1.4 g/t (250,800 ounces). The major reasons for the fall are the 325,000 ounce reduction in Inferred Resources for Sobresaliente and Zapuchay and material mined during the intervening period.

In estimating the November 1, 2006 resource, consideration has been given to the new exposure draft on Inferred Resources published by the Australian Joint Ore Reserves Committee in August of 2006. The exposure draft significantly tightens the definition of material that can be classified as inferred resources. At Sobresaliente a new Indicated and Inferred resource with significantly lower tonnes was estimated following drilling and re-assessment of the geological model for the deposit. At Zapuchay it was determined that additional work was required to confirm the inferred resources and until this was performed they should be removed. We regard the area around Zapuchay and Argentinita as particularly promising, and whilst it is disappointing that at this stage we cannot include much resource from it, we are concentrating on developing its resources.

This independent estimation has provided valuable input into the potential of each of the deposits and the steps needed to convert resources to reserves. Over the coming year we will focus on completing the studies and further exploration to advance this objective.

In recognition of the level of specialist expertise required to prepare reserve and resource information, the Board has decided to form a Reserves and Resources Committee during the coming half. Bill Lindqvist's considerable experience in this area makes him ideal to lead the committee and more specifically to define its remit.

Exploration to extend resources

Over the past six months we have focused on ensuring that we have the people, equipment, data and supplier resources to deliver on our objectives. Specific objectives for project areas have been established, responsibilities for project areas have been clearly assigned to senior geologists and support services such as drilling have been set up as separate functions.

While the past 6 months has been a period of consolidation, I am pleased to report that George Schroer is bringing a new level of professionalism to the exploration process and is building a strong team to accelerate progress. We have managed to recruit two experienced expatriate geologists (one to work in the eastern part of the Isla Cristallina belt, and one to work in the Florida and Dom Feliciano belts) to complement our developing Uruguayan staff. We have advanced considerably in how we collect, organise and use our data and have made important progress in improving quality assurance processes and planning work programmes for the 2007 calendar year.

Drilling in the current half was focused on infill drilling of resources, rather than expansions. This should progressively change over the next half with the focus changing to resource expansion and testing of new targets. A new diamond drill rig was delivered in the second quarter and is now fully operational and we expect to commission a second DM45 reverse circulation drill rig this month. Progressively during 2007 we will also look to increase production from our drill fleet by working a second shift.

The key to new success in the Isla Cristallina belt is to understand the mineralising events that originally created the gold deposits in the belt and to look for the structures that are consistent with these mineralising events. A very experienced independent structural Geologist, Rod Holcombe has been contracted to help us with this evaluation and he completed his first 3 week field visit in November. Concurrently we also started a detailed ground magnetic survey over the western portion of the belt. Both of these initiatives will provide new information and ideas that will be critical to renewed success in 2007.

Active gold exploration programmes on the eastern half of the Isla Cristallina belt, the Florida belt and the Dom Feliciano belt restarted during the half. While work to date has focused on data compilation and reconnaissance it will progressively change during 2007 as we start to drill test some of key projects such as Crucera and Presidente Terra.

The work to drill three holes at Lascano has started and we expect to announce our initial findings in the third quarter report due to be released in mid April. The Lascano anomaly covers a very large area of ground, approximately 70 kilometres by 30 kilometres. Accordingly the initial drill holes are targeted at stratigraphic information, not mineralisation. This information we collect will confirm the nature of geographical structures and the types of rocks that are causing the anomaly to enable us to refine our conceptual model.

Dividend

It is the Company's intention to declare an interim dividend of C$2.0 cents per share which will be paid on 12 April 2007 to shareholders on the register on 22 March 2007. This will cost a total of C$ 962,000 and compares with the dividend of C$3.5 cents paid on 27 October 2006. It is the Board's intention to recommend to the Annual General Meeting that a final dividend is paid in October 2007.

Summary

Tony Shearer Chairman

Statement on Reserves and Resources

Uruguay Mineral Exploration Inc. (UME) discloses the following update of its Mineral Resources and Mineral Reserves as at 1 November 2006. These Mineral Resources and Mineral Reserves, as well as the terms used in this disclosure, are fully compliant with NI 43-101 requirements and CIM Definition Standards.

UME Mineral Resources as at 1 November 2006 +

Cut- Off Grade Note (g/t (g/t Contained Deposit Au) Tonnes Au) Ounces Measured Resources Arenal 0.5 1,204,000 2.58 100,000 2 San Gregorio 0.5 278,000 0.94 8,300 2 Santa Teresa 0.5 497,000 1.14 18,200 2 Total Measured Resources 1,979,000 1.99 126,500 Indicated Resources Arenal 0.5 5,741,000 1.51 279,100 2 San Gregorio 0.5 1,850,000 1.50 89,000 2 Santa Teresa 0.5 1,434,000 1.09 50,200 2 Ombu 0.5 687,000 1.33 29,400 1 Argentinita 0.5 1,446,000 1.45 67,400 1 Sobresaliente 0.7 431,000 1.16 16,100 1 Stockpiles 0.5 23,000 2.11 1,600 3 Total Indicated Resources 11,612,000 1.43 532,800 Total Measured & Indicated 13,591,000 1.51 659,300 Inferred Resources Arenal 0.5 2,983,000 1.1 107,000 2 San Gregorio 0.5 115,000 1.9 6,900 2 Rieles/East Extension 0.5 1,545,000 1.6 78,200 3 Santa Teresa 0.5 7,000 0.8 200 2 Ombu 0.5 38,000 0.90 1,100 1 Argentinita 0.5 588,000 1.42 26,800 1 Sobresaliente 0.7 61,000 0.92 1,800 1 Vetas 0.5 282,000 3.2 28,700 3 Total Inferred Resources 5,619,000 1.4 250,700 ------------------------------------- ----------- ----- --------- ----UME Mineral Reserves as at 1 November 2006 +~

Cut- Grade Deposit Off Tonnes (g/t ContainedNote (g/t Au) Ounces Au) Proven Reserves Arenal 0.5 1,128,000 2.57 93,200 4 San Gregorio 0.5 156,000 0.94 4,700 4 Santa Teresa 0.5 269,000 1.24 10,700 4 Total Proven Reserves 1,553,000 2.18 108,600 Probable Reserves Arenal 0.5 2,249,000 1.8 128,800 4 San Gregorio 0.5 1,059,000 1.6 53,800 4 Santa Teresa 0.5 787,000 1.2 29,200 4 Stockpiles 0.5 23,000 2.1 1,600 4 Total Probable Reserves 4,118,000 1.6 213,400 Total Mineral Reserves 5,671,000 1.77 322,000 5

Earlier from B2Gold Corp.

Uruguay Mineral Exploration Inc. Half Year Results Conference Call 2007-01-10