3rd Quarter Results

Medoro Resources Announces Third Quarter Results TORONTO, Nov. 15 /CNW/ - Medoro Resources Ltd. (TSX-V/AIM: MRL) announced today its third quarter and year-to-date results for the three and eleven- month periods ending September 30, 2004. Medoro Resources was formed following the business combination between Full Riches Investments Limited and a wholly- owned subsidiary of Gold Mines of Sardinia, plc. The new entity, Medoro Resources, has elected to report its financial results on a calendar year basis. Full Riches previously reported its results for the three months ended January 31, 2004, and, having been identified as the acquirer for accounting purposes, this release includes results for both the three and eleven-month periods ending September 30, 2004. For the three and eleven-month periods ended September 30, 2004, Medoro Resources reported a loss of $1.8 million and $4.9 million or $0.02 and $0.07 per share respectively. The loss largely reflects the impact of one-time costs related to the business combination, as well as ongoing operating costs at its 90%-owned operating subsidiary in Sardegna. In Sardegna, Gold Fields has completed the first phase of drilling at the Monte Ollasteddu prospect and results are expected to be announced before the end of November. On October 20, 2004, the company announced the completion of the sale of Gold Mines of Sardinia Pty. Ltd. to Sargold Resource Corporation. With this sale, Medoro has significantly improved its financial position, with (euro) 6 million additional working capital and the elimination of all liabilities, while retaining its interests in the Monte Ollasteddu and Pestarena projects. The company is actively pursuing other opportunities in Italy, and elsewhere in Europe. Financial Statements and Management's Discussion & Analysis follow. Medoro Resources Ltd. ------------------------------------------------------------------------- Consolidated Balance Sheets Expressed in Canadian dollars September 30, October 31, 2004 2003 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Assets Unaudited Audited Current assets Cash and equivalents $ 3,104,746 $ 3,221,339 Accounts receivable 2,640,631 9,468 Promissory note - 50,000 Inventories 607,088 - Prepaids and deposits 199,947 1,973 ------------------------------------------------------------------------- 6,552,412 3,282,780 Loan receivable (Note 2 d) - 662,925 Mineral properties (Notes 2 f and 3) 23,762,477 - Property, plant and equipment 5,358,149 - ------------------------------------------------------------------------- Total assets $ 35,673,038 $ 3,945,705 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Liabilities and shareholders' equity Current liabilities Accounts payable and accruals $ 4,324,846 $ 97,762 Long-term debt 8,988,187 - Other long-term liabilities 4,743,320 - ------------------------------------------------------------------------- 18,056,353 97,762 ------------------------------------------------------------------------- Shareholders' equity Share capital (Note 4) 28,981,977 6,706,001 Contributed surplus (Notes 2 c, 2f and 4c) 305,953 - Shares to be issued (Note 3) - 15,000 Special warrants (Note 2 b) - 2,490,905 Subscriptions received (Note 2 c) - 1,255,000 Cumulative translation adjustment (185,480) - Deficit (11,485,765) (6,618,963) ------------------------------------------------------------------------- 17,616,685 3,847,943 ------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 35,673,038 $ 3,945,705 ------------------------------------------------------------------------- ------------------------------------------------------------------------- These unaudited interim consolidated financial statements for the periods ended September 30, 2004 have not been reviewed by the Company's auditor. See accompanying notes to unaudited interim consolidated financial statements. Medoro Resources Ltd. ------------------------------------------------------------------------- Consolidated Statements of Operations and Deficit Expressed in Canadian dollars, unaudited Three Months Three Months Eleven Months Year Ended Ended Ended Ended Sept. 30, Oct. 31, Sept. 30, Oct. 31, 2004 2003 2004 2003 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Interest income $ 13,192 $ 6,292 $ 93,411 $ 6,516 General and administrative expenses (1,264,335) (690) (3,562,194) (198,408) Stock compensation expense (note 4c) (126,600) - (126,600) - Exploration expenses (441,858) - (997,472) - Loss on disposal of capital assets - - - (1,844) Amortization - - (305,870) (97) Foreign exchange gains (losses) (13,505) 5,617 31,923 (2,850) ------------------------------------------------------------------------- Net earnings (loss) for the period from continuing operations (1,833,106) 11,219 (4,866,802) (196,683) ------------------------------------------------------------------------- Net loss from discontinued operations - (150,000) - (150,000) ------------------------------------------------------------------------- Net loss for the period (1,833,106) (138,781) (4,866,802) (346,683) Deficit, beginning of period (9,652,659) (6,480,182) (6,618,963) (6,272,280) ------------------------------------------------------------------------- Deficit, end of period $(11,485,765) $ (6,618,963) $(11,485,765) $ (6,618,963) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic and diluted loss per share Continuing operations $ (0.02) - $ (0.07) $ (0.01) Net $ (0.02) $ (0.02) $ (0.07) $ (0.03) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Weighted average number of common shares outstanding 86,022,667 11,871,849 65,106,039 11,871,849 ------------------------------------------------------------------------- ------------------------------------------------------------------------- See accompanying notes to unaudited interim consolidated financial statements. Medoro Resources Ltd. ------------------------------------------------------------------------- Consolidated Statements of Cash Flows Expressed in Canadian dollars, unaudited Three Months Three Months Eleven Months Year Ended Ended Ended Ended Sept. 30, Oct. 31, Sept. 30, Oct. 31, 2004 2003 2004 2003 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Cash provided by (used in): Operating activities Net earnings (loss) for the period from continuing operations $(1,833,106) $ 11,219 $(4,866,802) $ (196,683) Items not affecting cash: Loss on disposal of assets - - - 1,844 Amortization - - 305,870 97 Stock compensation expense 126,600 - 126,600 - Foreign exchange (gains) losses 13,505 (5,617) (31,923) 2,850 Bridge financing fee - 15,000 - 15,000 Changes in non-cash working capital items: Accounts receivable (645,607) (126,334) (1,009,545) (8,107) Promissory note - - 50,000 - Inventories 15,188 - 10,752 - Prepaids and deposits 256,363 2,465 (49,932) 2,465 Accounts payable and accrued liabilities 886,510 99,952 880,282 80,414 Other long-term liabilities (25,187) - 158,340 - ------------------------------------------------------------------------- (1,205,734) (3,315) (4,426,358) (102,120) ------------------------------------------------------------------------- Investing activities Acquisition of Sardinia Gold Mining SpA, net of acquired cash (Note 2) (48,507) - (2,152,786) - Advances to Gold Mines of Sardinia plc - (662,925) - (662,925) Acquisition of mineral properties(Note 3) - - (1,008,042) - Proceeds on disposal of property, plant and equipment, net 15,861 - 4,313 - ------------------------------------------------------------------------- (32,646) (662,925) (3,156,515) (662,925) ------------------------------------------------------------------------- Financing activities Proceeds from bridge financing - 660,900 - 660,900 Repayment of bridge financing - (660,900) - (660,900) Issuance of special warrants - 2,490,905 295,000 2,490,905 Issuance of subscription receipts - 1,255,000 8,015,000 1,255,000 Issuance costs - - (781,515) - ------------------------------------------------------------------------- - 3,745,905 7,528,485 3,745,905 ------------------------------------------------------------------------- Foreign exchange impact on cash (49,419) - (62,205) - ------------------------------------------------------------------------- Net increase (decrease) in cash and equivalents (1,287,799) 3,079,665 (116,593) 2,980,860 Cash and equivalents, beginning of period 4,392,545 141,674 3,221,339 240,479 ------------------------------------------------------------------------- Cash and equivalents, end of period $ 3,104,746 $ 3,221,339 $ 3,104,746 $ 3,221,339 ------------------------------------------------------------------------- ------------------------------------------------------------------------- See accompanying notes to unaudited interim consolidated financial statements. Medoro Resources Ltd. Notes to Unaudited Interim Consolidated Financial Statements For the Three and Eleven Month Periods Ended September 30, 2004 and the Three and Twelve Month Periods Ended October 31, 2003 All Amounts Expressed in Canadian Dollars Unaudited ------------------------------------------------------------------------- 1. Basis of Presentation The interim consolidated financial statements include the accounts of the amalgamated entity resulting from the Business Combination (as described in Note 2) and its wholly owned subsidiaries, principally Gold Mines of Sardinia Pty. Ltd. ('GMS Australia'), Sardinia Gold Mining SpA ('Sardinia Gold') and Miniere di Pestarena srl. Pursuant to the Business Combination, the amalgamated company, formed on March 2, 2004, has continued under the name of Medoro Resources Ltd. (the 'Company'). The unaudited interim period financial statements have been prepared by the Company in accordance with Canadian generally accepted accounting principles ('GAAP'). All financial summaries included are presented on a comparative and consistent basis showing the figures for the corresponding period in the preceding year. The preparation of financial data is based on accounting principles and practices consistent with those used in the preparation of annual financial statements. Certain information and footnote disclosure normally included in financial statements prepared in accordance with GAAP has been condensed or omitted. These unaudited interim period statements should be read together with the audited financial statements and the accompanying notes included in Full Riches Investments Limited's ('FRI') latest annual report. In the opinion of the Company, its unaudited interim financial statements contain all adjustments necessary in order to present a fair statement of the results of the interim periods presented. Certain reclassifications have been made to the prior period financial statements to conform to the current period presentation. 2. Acquisition of Sardinia Gold Mining SpA (a) The business combination On October 3, 2003, FRI entered into an arm's length agreement with Gold Mines of Sardinia plc, a public company formed under the laws of England and Wales ('GMS England') pursuant to which FRI and GMS England agreed to complete a business combination (the 'Business Combination'). GMS England is a gold exploration and development company with interests on the Italian island of Sardinia through its operating subsidiary Sardinia Gold, a joint venture with the Sardinian regional Government, in which GMS England holds a 90% interest through GMS Australia and the Sardinian regional Government the remaining 10%. FRI received approval in February 2004 from the TSX Venture Exchange to amalgamate with GMS England's wholly owned subsidiary, Medoro Resources Ltd. ('GMS Canada'), incorporated under the laws of the Yukon, to create the Company. The amalgamation was completed February 24, 2004. GMS England transferred all of the issued and outstanding shares in the capital of GMS Australia from GMS England to GMS Canada in consideration for an aggregate of 38,726,261 shares of GMS Canada. Pursuant to the terms of the amalgamation: (i) GMS England, as the sole shareholder of GMS Canada, received common shares of the Company, representing approximately 50% of the Company's issued and outstanding shares as of the date of the completion of the amalgamation. In conjunction with the completion of the Business Combination, GMS England distributed the shares it received of the Company to its shareholders; and (ii) The shareholders of FRI received common shares of the Company representing, in aggregate, approximately 50% of the Company's issued and outstanding shares as of the date of the amalgamation. In identifying the acquirer in this Business Combination, consideration was given to the proposed relative composition of the Board of Directors and Management of the Company. FRI was identified as the acquirer. (b) Initial private placement Completion of the Business Combination was subject to the successful completion of $10,000,000 (gross) in equity financings by FRI (the 'Private Placements'). The use of proceeds of the financings is for future exploration and development expenses and general working capital. In connection with the Business Combination, FRI announced a non-brokered private placement of up to 40,500,000 special warrants (the 'Special Warrants') at a price of $0.10 per Special Warrant for gross proceeds of $4,050,000 (the 'Initial Private Placement'). On October 27, 2003, FRI completed the issue and sale of 25,000,000 Special Warrants for aggregate proceeds of $2,500,000. FRI completed the issue and sale of the balance of the $1,550,000 on December 11, 2003. The Special Warrants were subsequently exercised for common shares prior to the completion of the amalgamation and each FRI common share received on such exercise was exchanged of 0.5 common shares of the Company pursuant to the amalgamation. Issuance costs related to the transaction amounted to $43,798. (c) Agency Private Placement In connection with the satisfaction of the condition to complete the balance of the Private Placements, FRI retained an agent (the 'Agent') in connection with the private placement of 22,900,000 subscription receipts (the 'Subscription Receipts') at a price of $0.35 per Subscription Receipt for aggregate proceeds of $8,015,000 (the 'Agency Private Placement'). Each Subscription Receipt was exercisable, for no additional consideration, into one FRI common share. The private placement was completed on January 16, 2004. The Subscription Receipts were exercised for FRI common shares prior to the amalgamation and each FRI common share received on the exercise was subsequently exchanged for 0.5 common shares of the Company pursuant to the amalgamation. In connection with the Agency Private Placement, FRI paid the Agent a commission of $480,900 equal to 6% of the aggregate proceeds from the Agency Private Placement and issued 1,374,000 Agent's Warrants. Each Agent's Warrant entitles the holder to acquire one FRI common share at a price of $0.35 until January 15, 2006. In addition, each Agent's Warrant was exchanged for 0.5 replacement warrants of the Company at $0.70 per warrant pursuant to the amalgamation. The fair value of the Agent's Warrants of $117,950, included in contributed surplus, was calculated using the Black-Scholes pricing model assuming a risk-free interest rate of 2.87%, volatility of 40% and no dividend payments. Total issuance costs related to the Subscription Receipts were $864,762 including the commission, warrants and advisory and legal fees. (d) Interim financing of GMS England and Sardinia Gold In conjunction with the Business Combination, FRI arranged interim financing (the 'Interim Financing') for GMS England consisting of US $1,500,000 advanced by FRI in two tranches pursuant to a loan agreement between FRI and GMS England dated October 3, 2003 (the 'GMS Loan Agreement'). The loans bore interest at a rate of 10% per annum from the date of issue and matured following the completion of the Business Combination such that the obligations of GMS England thereunder expired on closing of the Business Combination. The loans were direct obligations of GMS England, secured by a charge over the shares of GMS Australia. All funds advanced under the Interim Financing were paid directly to Sardinia Gold. In February 2004, prior to the Business Combination, FRI advanced ('SGM Advances') additional funds of $211,968 directly to Sardinia Gold for working capital purposes. Pursuant to the Business Combination, the obligations of GMS England under the Interim Financing and SGM Advances were acquired by the Company. (e) Joint venture Pursuant to the terms of the Business Combination, the Company entered into a binding letter of intent with a wholly-owned subsidiary of Gold Fields Limited ('Gold Fields'). Under the letter of intent, the Company granted Gold Fields an exclusive option over all of its properties in Sardinia not currently under option to Bolivar Gold Corp. or Sargold Resource Corporation. Gold Fields has a period of 12 months to perform preliminary evaluations on the properties, during which period Gold Fields has the right to acquire up to a 70% interest in specific properties, with 50% to be earned by sole-funding all expenditures through to completion of a bankable feasibility study. Upon completion of a bankable feasibility study, Gold Fields and Sardinia Gold will each be responsible for funding further exploration, development and other work on the property in accordance with their respective percentage interests. (f) Other matters (i) In consideration for their services, in introducing the parties, assistance with the Italian authorities, due diligence, assisting with the financing and continued services in completing the Business Combination, a total of 10,000,000 FRI common shares were issued, after receiving TSX Venture Exchange approval, to Next com Italia srl, Jose Francisco Arata and Endeavour Financial. Pursuant to the amalgamation, each of these common shares were exchanged for 0.5 common shares of the Company. (ii) FRI retained McFarlane Gordon Inc. to act as sponsor (the 'Sponsor') in connection with the Business Combination in accordance with the policies of the TSX Venture Exchange. As consideration for the services rendered by the Sponsor, FRI agreed to issue 250,000 FRI common shares which, pursuant to the amalgamation, were subsequently exchanged for 0.5 common shares of the Company. (iii)Post-amalgamation, the Company issued: - 1,182,888 options to holders of GMS England options; - 5,793,918 warrants to holders of GMS England warrants as consideration for the assignment to, and assumption by, the Company of certain GMS England Agreements; and - 319,857 common shares to Williams de Broe in consideration of services performed in connection with the amalgamation. (iv) On February 24, 2004, the Business Combination was completed and shares in the Company began trading on March 2, 2004. The acquisition of 100% of GMS Australia has been accounted for using the purchase method and the results of operations have been included in the earnings of the Company from the date of amalgamation. The preliminary allocation of the purchase price is summarized below: 44,171,118 shares issued at $0.20 per share (Notes 2 a, 2 f (i), 2 f (ii) and 2 f (iii)) $ 8,834,223 Fair value of GMS England options and warrants exchanged for options and warrants of the Company (Note 2 f (iii)) 61,403 Acquisition costs 1,450,000 --------------------------------------------------------------------- Total consideration $10,345,626 --------------------------------------------------------------------- --------------------------------------------------------------------- Net assets acquired: Cash $ 467,080 Accounts receivable 1,751,366 Inventories 655,756 Prepaids and deposits 158,821 Mineral interests 21,017,046 Property, plant and equipment 6,197,089 Accounts payable and accrued liabilities (3,001,865) Interim Financing and SGM Advance (Note 2 d) (2,203,968) Long-term debt (9,544,655) Other long-term liabilities (5,151,044) --------------------------------------------------------------------- $10,345,626 --------------------------------------------------------------------- --------------------------------------------------------------------- The fair value of the options and warrants was determined using the Black-Scholes option pricing model assuming no dividends were paid, a volatility of the Company's shares of 40%, an expected life of options and warrants ranging between 0.5 years and 5 years and annual risk-free interest rate ranging between 2.15% and 3.48%. As at September 30, 2004, $356,806 of the acquisition costs was included in accounts payable and accrued liabilities. 3. Acquisition of Miniere di Pestarena srl On March 23, 2004, the Company acquired 100% of the share capital in Miniere di Pestarena srl, an Italian company with exploration rights covering the Pestarena and Lavanchetto concessions located in the Piedmont Region in Northern Italy for total consideration amounting to $3,208,042 represented by a cash payment of $979,835 ((euro) 600,000), acquisition costs of $28,207 and the issuance of 4,000,000 common shares of the Company on May 5, 2004. The acquisition has been accounted for using the purchase method and the purchase price has been allocated to mineral properties. 4. Capital Stock (a) Common shares Authorized Unlimited common shares without par value Issued and outstanding Number of Amount shares --------------------------------------------------------------------- --------------------------------------------------------------------- Opening balance as at October 31, 2003 11,871,849 $ 6,706,001 Issued prior to amalgamation: As consideration for bridge facility (see below) 150,000 15,000 Upon exercise of Special Warrants (Note 2 b) 40,500,000 4,006,202 Upon exercise of Subscription Rights (Note 2 c) 22,900,000 7,150,238 As consideration for services in connection with the Business Combination (Note 2 f (i)) 10,000,000 1,000,000 As consideration for services rendered by the Sponsor (Note 2 f (ii)) 250,000 25,000 --------------------------------------------------------------------- Balance as at February 24, 2004, prior to amalgamation 85,671,849 $18,902,441 --------------------------------------------------------------------- --------------------------------------------------------------------- Number of Amount shares --------------------------------------------------------------------- --------------------------------------------------------------------- Opening balance as at February 24, 2004, post-amalgamation, after giving effect to exchange of 0.5 common shares of the Company for each FRI common share 42,835,925 $18,902,441 Issued to GMS England pursuant to the Business Combination (Note 2 a) 38,726,261 7,745,252 Issued as consideration for services in connection with the amalgamation (Note 2 f (iii)) 319,857 63,971 Issued in settlement of accrued liabilities (see below) 140,624 70,313 Issued to acquire Miniere di Pestarena srl (Note 3) 4,000,000 2,200,000 --------------------------------------------------------------------- Closing balance as at September 30, 2004 86,022,667 $28,981,977 --------------------------------------------------------------------- --------------------------------------------------------------------- FRI issued 150,000 common shares to Endeavour Mining Capital Corp. as part of the consideration for providing it with a bridge facility of US $500,000 bearing interest at a rate of 10% per annum that matured on October 31, 2003. On May 5, 2004, pursuant to the approval of the TSX Venture Exchange, the Company issued an aggregate of 140,624 common shares in final payment of $70,313 of accrued liabilities owed to four consultants to the Company. (b) Escrow shares As at September 30, 2004, there were 3,639,000 common shares of the Company held in escrow. (c) Stock options As at September 30, 2004, there are 2,825,000 stock options of the Company outstanding exercisable at $0.70 per common share, including 325,000 stock options of the Company granted in February 2004 to certain officers and consultants of FRI. In addition, subsequent to the amalgamation, 1,182,888 stock options of the Company were issued to holders of GMS England options expiring through mid-2006 at exercise prices ranging from $1.45 to $3.25 per common share. In August 2004, the Company granted 2,705,000 stock options exercisable at $0.18 per common share and vesting immediately to certain officers and consultants. The fair value of these stock options of $126,600, included in contributed surplus and stock compensation expense, was calculated using the Black-Scholes pricing model assuming a risk-free interest rate of 2.78%, volatility of 40% and no dividend payments. (d) Stock warrants As at September 30, 2004, there were 5,793,918 warrants (Note 2 f (iii)) outstanding with expiry dates ranging up until 2008 and exercise prices ranging from $0.70 to $3.30 per common share. In addition, there were 687,000 Agent's Warrants (Note 2 c) outstanding exercisable at $0.70 per common share expiring on January 15, 2006. 5. Related Party Transactions During the eleven months ended September 30, 2004, the Company paid the following amounts to related parties: (a) Consulting fees of $63,204 and rent of $4,000 (2003 - $15,000) were paid to a company in which a director of the Company is an officer. (b) Consulting fees of $212,580 were paid (2003 - $32,500) to Next com Italia srl, a company in which the President of Sardinia Gold is managing director. 6. Segmented Information The Company operates in one principal business segment, gold exploration and development, principally conducted through its operating subsidiaries located in Italy. 7. Subsequent Event On October 20, 2004, the Company completed the sale of all of its shares in GMS Australia, including its 90% interest in Sardinia Gold, to Sargold Resource Corporation ('Sargold') for consideration consisting of (euro) 6.0 million in cash, payable over a period of sixty months, $1.0 in common shares of Sargold, and a 2% net smelter royalty interest. Sargold has the right to buy back the royalty interest for US $1.0 million per percent. As a result of the transaction, the Company has no debt and its mineral properties comprise its investment in Miniere di Pestarena srl and its interest in the Monte Ollasteddu concession in Sardinia. Management's Discussion and Analysis of Results of Operation and Financial Condition for the three and eleven-month periods ended September 30, 2004 This Management's Discussion and Analysis should be read in conjunction with the company's unaudited consolidated financial statements for the periods ended September 30, 2004 and related notes thereto which have been prepared in accordance with Canadian generally accepted accounting principles. In addition, the following should be read in conjunction with the 2003 audited consolidated financial statements. All figures are expressed in Canadian dollars unless otherwise noted. This Management's Discussion and Analysis has been prepared with reference to National Instrument 51-102 'Continuous Disclosure Obligations' of the Canadian Securities Administrators. This Management's Discussion and Analysis has been prepared as of November 15, 2004. Overview Medoro Resources Ltd. was created in February 2004 as a result of the business combination between Full Riches Investments Limited and GMS Canada, whose principal assets were the exploration and formerly-producing gold assets belonging to Gold Mines of Sardinia (GMS). The original focus of GMS was the exploration, development and production of gold on the island of Sardegna in Italy. GMS was successful in this regard, having produced, in total, 130,000 ounces of gold during the period 1997 - 2003. This was not a particularly prosperous period for gold producers, large and small, as the price of gold was hovering around 20-year lows. As a result, GMS' ability to explore for and develop additional gold resources was constrained by available cash flow. Having exhausted all readily-available sources of ore in February 2003, the company suspended operations and pursued alternatives that would enable GMS shareholders to realize some value for its extensive portfolio of exploration concessions. The Full Riches transaction achieved this objective. In addition to providing badly needed cash resources, a key requirement of the transaction was that Full Riches secure the participation of a senior partner who would take on the responsibility of funding an aggressive program of exploration of GMS' concessions. This commitment was fulfilled by the participation of a wholly-owned subsidiary of Gold Fields Limited, who have a 12-month exclusive right to explore any GMS concession not previously optioned to another party and can earn a 70% interest in any such property by funding all costs through to the completion of a bankable feasibility study. In addition to the Gold Fields Joint Venture, GMS had previously negotiated two exploration joint ventures, one with Sargold Resource Corporation for exploration in the Furtei area and one with Bolivar Gold Corp. for the exploration of the Monte Ollasteddu concession. Bolivar Gold Corp. has earned 15% and can earn a further 55% interest in the property by funding all expenditures through to the completion of a bankable feasibility study. A wholly-owned subsidiary of Gold Fields is currently earning a 60% interest in the property from Bolivar Gold by funding all of Bolivar Gold's obligations. On October 20, 2004, the company completed a restructuring of the Sargold agreement whereby Sargold acquired Medoro's entire interest in all Sardinian assets, except Monte Ollasteddu, in exchange for (euro) 6 million in cash, the assumption of all liabilities and $1 million in common shares of Sargold. Medoro Resources' vision is to create a European-focused gold exploration company with a diverse portfolio of gold prospects throughout the region. To achieve this objective, the company has leveraged off of its existing land position in Sardegna to focus on a smaller number of more prospective properties. Given the company's current financial and technical resources, Medoro's strategy will initially be to rely extensively on joint ventures with highly-qualified, well-financed partners to fund exploration of both existing concessions as well as newly-acquired opportunities elsewhere in Italy and throughout Europe. In order to achieve this strategy, the company has reduced the negative cash flow associated with the formerly producing GMS assets to a point where Medoro is now organized and operated on a largely 'cash neutral' basis, with almost all exploration funding provided by joint venture partners. In the longer term, this strategy is only viable if economic quantities of gold are discovered and developed on at least one of the company's properties and thereby generate positive cash flow sufficient to cover all corporate costs on an ongoing basis. Results of Operations With the recently completed business combination, comparisons between current costs and prior periods are not meaningful. However, the following comments identify various issues related to the results of operations for the periods ending September 30, 2004 and the company's financial condition as of that date. With mining operations in Sardegna suspended as of February 2003, the only tangible activity in the group was general and administrative costs related to the business combination as well as ongoing administrative costs, primarily in Italy and Canada. These costs amounted to $3.6 million in the eleven months ended September 30, 2004, with $1.3 million occurring in the most recent three months. In addition, a total of $442,000 was expended in the past three months on exploration that is not recoverable from joint venture partners. After adjusting for non-cash items and changes in non-cash working capital, operating activities consumed $1.2 million in the three months ended September 30, 2004and a further $3.2 million in the preceding eight months. Investing activities in the eleven-month period ended September 30, 2004 consists largely of the acquisition of GMS and the Pestarena property in northwestern Italy. During the eleven months ended September 30, 2004 the company raised net proceeds of $7.5 million through the sale of 22.9 million subscription receipts which were exercisable, for no additional consideration, into common shares of Full Riches which, pursuant to the business combination, were exchanged for 0.5 common shares of Medoro Resources each. The following tables provide selected financial information for the three most recent years and eight most recent quarters. All results from business activities preceding the GMS acquisition have been treated as discontinued operations. ------------------------------------------------------------------------- ------------------------------------------------------------------------- Three most recent years Oct. 31 Oct. 31 Oct. 31 2003 2002 2001 ------------------------------------------------------------------------- a) Revenues $ 0 $ 798,695 $ 979,116 b) Income before discontinued operations 0 0 0 - per share 0.00 0.00 0.00 c) Net income (346,683) (507,972) (42,559) - per share (0.03) (0.04) (0.00) d) Total assets 3,945,705 448,219 258,515 e) Long term debt 0 0 0 f) Dividends per share 0.00 0.00 0.00 ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- Summary of Quarterly Results Sept. 30 Jun. 30 Mar. 31 Jan. 31 2004 2004 2004(x) 2004 ------------------------------------------------------------------------- a) Revenues $ 0 $ 0 $ 0 $ 0 b) Income before discontinued operations (1,833,106) (1,879,832) (1,064,016) 0 - per share (0.02) (0.02) (0.02) 0.00 c) Net income (1,833,106) (1,879,832) (1,064,016) (89,848) - per share (0.02) (0.02) (0.02) (0.01) ------------------------------------------------------------------------- ------------------------------------------------------------------------- (x) two-month period ------------------------------------------------------------------------- ------------------------------------------------------------------------- Summary of Quarterly Results Oct. 31 Jul. 31 Apr. 30 Jan. 31 2003 2003 2003 2003 ------------------------------------------------------------------------- a) Revenues $ 0 $ 0 $ 0 $ 0 b) Income before discontinued operations 0 0 0 0 - per share 0.00 0.00 0.00 0.00 c) Net income (138,781) (156,046) (26,289) (25,567) - per share (0.01) (0.01) (0.00) (0.00) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Liquidity and Financial Resources At September 30, 2004, Medoro Resources had $3.1 million in cash and working capital of $2.2 million. Subsequent to the end of the quarter, the company completed the previously announced sale of most of its Sardinian assets for (euro) 6 million receivable over 60 months, of which (euro) 500,000 was received on closing and the balance will be included in short and long term receivables, with essentially all short and long term liabilities being assumed by the buyer. Disclosure of Outstanding Share Data Medoro Resources' outstanding voting or equity securities, or securities convertible into, or exercisable or exchangeable for, voting or equity securities of the company, are as follows: ------------------------------------------------------------------------- Securities Sep 30 Jun 30 Mar 31 Oct 31 2004 2004 2004 2003 ------------------------------------------------------------------------- Common shares 86,022,667 86,022,667 81,882,043 11,871,849 Warrants, with 5,793,918 5,793,918 5,793,918 Nil expiry dates ranging up until 2008 and exercise prices ranging from $0.70 to $3.30 Agent's warrants, 687,000 687,000 687,000 Nil exercisable until January 15, 2006 at $0.70 Stock options, with 6,712,888 4,007,888 4,007,888 Nil expiry dates ranging up until February 2009 and exercise prices ranging from $0.18 to $3.49 ------------------------------------------------------------------------- Transactions with Related Parties All transactions with related parties have occurred in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. During the eleven month period ended September 30, 2004, Medoro Resources paid the following amounts to related parties: (i) consulting fees of $63,204 and rent of $4,000 (2003 - $15,000) to a company in which a director of the Company is an officer; and (ii) consulting fees of $212,580 were paid (2003 - $32,500) to Next com Italia srl, a company in which the President of Sardinia Gold is managing director. Off-Balance Sheet Arrangements Medoro Resources has no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on the results of operations or financial condition of the company including, without limitation, such considerations as liquidity and capital resources. Changes in Accounting Policies Including Initial Adoption Medoro Resources' unaudited interim financial statements are prepared in accordance with Canadian generally accepted accounting principles ('GAAP'). They do not include all of the information and disclosures required by Canadian GAAP for annual financial statements. In the opinion of management, all adjustments considered necessary for fair presentation have been included in these financial statements. Additional information relating to the company is available on SEDAR at www.sedar.com. For further information: Peter Volk, Assistant Secretary, (416) 603-4653, info@medororesources.com (MRL.)

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