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La Mancha Resources

La Mancha – A Profitable end to 2008

Not everybody records profits these days. So when Toronto listed La Mancha Resources Inc. (TSX: LMA) reported a net earnings of $1.18 million and a mine operating earnings of $1.4 million for 4Q2008, we were naturally interested in bringing the news to our readers. La Mancha produced 20,985 Oz gold in 4Q2008 taking the total production for 2008 to 71,550 Oz, an impressive 33% increase from 2007 production.

It is significant to note that 4Q2008 marks the company’s first profitable quarter. The increase in production is due to the start-up of La Mancha's third mine, Frog's Leg, and to the improved performance of the Ity mine, which together compensated for a decline in performance at the Hassai mine. Revenues totalled $53.6 million compared to $48.5 million in 2007 as a result of this increased production and stronger gold prices.

For those who are not familiar with La Mancha, it is an internationally diversified gold producer and operates three gold mines, with production strategically distributed between Africa and Australia. La Mancha has a 45.9% interest in Ity Mine (the only operating gold mine in the Côte d'Ivoire), 40% interest in the Hassaï gold mine in Sudan and 51% interest in Frog's Leg mine Australia.  Readers will be pleased to know that La Mancha is the operator of all three mines and certainly is in the thick of action. The company is also developing an advanced project in Australia and controls five additional exploration tenements totalling 3,591 km² in the Côte d'Ivoire. In other words, if one is seeking upside from exploration endeavours, La Mancha got them as well.

La Mancha’s 71,550 ounces of gold in 2008 came at an average cash cost of US$512 per ounce. This compares to production of 53,900 ounces at an average cash cost of US$485 in 2007. The company recorded a mine operating loss of $43,000 in 2008, compared to a mine operating loss of $8.2 million for 2007, on the back of a declining cash cost per ounce, which translated in mine operating earnings for the second half of the year.

Michel Cuilhe, President and CEO expressed his optimism on La Mancha’s prospects. With a third mine successfully put to production, the positive conclusions of a feasibility study supporting the development of a fourth mine in Australia, and the significant increase of our gold production and resources, La Mancha is definitely well engaged on the growth path says Cuilhe. He also reckons that La Mancha will be able to achieve consistent profitability through reduced exploration expenses for 2009 and the steady ramp-up of our new Frog's Leg mine in Australia.

La Mancha recorded a net loss of $5.4 million in 2008, compared to a net loss of $10.8 million for 2007. The Company's 2008 performance was negatively affected by two "non-cash" items: a $3.1 million write-down of asset-backed commercial paper (ABCP) investments and a $1.1 million loss associated with a gold-denominated loan contracted on a non-recourse basis by its Argentinean subsidiary, Minera Patagonia. This Argentinean subsidiary was declared bankrupt in November 2008 by a local court. Consequently, the subsidiary including its gold-denominated loan was deconsolidated from La Mancha's balance sheet as of December 31, 2008.

Unlike many others, La Mancha is well financed and had cash and short term investments of $12.2 million and long-term investments in various securities an additional $8.2 million as of December 31, 2008. There is also a medium-term debt financing agreement with Areva, its main shareholder, for an A$22 million revolving facility in place. The facility is mainly to support La Mancha's share of the Frog's Leg development, and expires on December 31, 2011.

La Mancha's Measured and Indicated resources ("M&I resources") total almost 1.77 million ounces of gold, up 34% from the 2007 year-end resources of 1.32 million ounces. Proven and Probable reserves ("P&P reserves") stood at 710,507 ounces of gold at the end of 2008 compared to 688,860 ounces a year earlier. Infill drilling and the completion of detailed extensional drilling at the Frog's Leg mine added 136,170 ounces to La Mancha's M&I resources, while tailings qualification at the Hassai mine added 114,000 ounces, Ity mine resource development drilling added 112,459 ounces and infill drilling at the White Foil project added 131,040 ounces.

A busy but exciting 2009 is ahead for La Mancha. The company is well-financed, has access to further financing if needed, has three producing mines and is expecting the fourth to be pouring gold in 2009. The Frog's Leg mine is gathering pace (37,000 and 42,000 ounces of gold for La Mancha expected in 2009). The Hassam mine is expected to produce between 62,500 and 75,000 ounces of gold in 2009 (25,000 and 30,000 ounces attributable to La Mancha) at a cash cost of US$673 per ounce. The Ity mine is expected to produce between 50,110 and 61,000 ounces of gold in 2009 (23,000 ounces and 28,000 ounces attributable to La Mancha) at a cash cost of US$379 per ounce, compared to 54,460 ounces of gold produced in 2008 (24,995 ounces attributable to La Mancha). The production increase for 2009 will be generated by a full year of mining from the higher-grade Mount Ity pit.