Medoro Resources Announces First Quarter Results
Medoro Resources Announces First Quarter Results
TORONTO, May 17 /CNW/ - Medoro Resources Ltd. (TSX-V/AIM: MRL) announced
today its results for the two and five-month periods ending March 31, 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 two and five-month periods ending March 31, 2004.
For the two and five-month periods ended March 31, 2004, Medoro Resources
reported a loss of $1.1 million and $1.2 million 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 at the Monte Ollasteddu prospect, excellent progress has been
made in resolving all remaining issues related to site access and exploration
permits and the company believes that exploration will commence imminently.
At the Furtei concessions, also in Sardegna, Sargold Resource Corporation
is continuing to explore the Sa Perrima deposit and has announced that a
revised resource calculation is currently underway and that additional
metallurgical testing is being undertaken to determine whether recoveries can
be improved.
Financial Statements and Management's Discussion & Analysis follow.
Additional information can be found on the company's website:
www.medororesources.com.
These unaudited interim consolidated financial statements for the periods
ended March 31, 2004 have not been reviewed by the Company's auditor.
Medoro Resources Ltd.
Consolidated Balance Sheets
Expressed in Canadian dollars
March 31, October 31,
2004 2003
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Unaudited Audited
Assets
Current assets
Cash and equivalents $ 7,892,468 $ 3,221,339
Accounts receivable 2,005,689 9,468
Promissory note - 50,000
Inventories 631,979 -
Prepaids and deposits 147,534 1,973
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10,677,670 3,282,780
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Loan receivable (Note 2 d) - 662,925
Mineral properties (Notes 2 f and 3) 24,127,071 -
Property, plant and equipment 6,003,694 -
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Total assets $ 40,808,435 $ 3,945,705
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Liabilities and shareholders' equity
Current liabilities
Accounts payable and accruals $ 4,774,970 $ 97,762
Long-term debt 9,222,340 -
Other long-term liabilities 5,621,155 -
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19,618,465 97,762
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Shareholders' equity
Share capital (Note 4) 26,711,664 6,706,001
Contributed surplus (Notes 2 c and f) 179,353 -
Shares to be issued (Note 3) 2,200,000 15,000
Special warrants (Note 2 b) - 2,409,905
Subscriptions received (Note 2 c) - 1,255,000
Cumulative translation adjustment (128,220) -
Deficit (7,772,827) (6,618,963)
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18,772,456 3,847,943
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Total liabilities and shareholders' equity $ 40,808,435 $ 3,945,705
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See accompanying notes to unaudited interim consolidated financial
statements.
Medoro Resources Ltd.
Consolidated Statements of Operations and Deficit
Expressed in Canadian dollars
Unaudited
Two Months Three Months Five Months Six Months
Ended Ended Ended Ended
March 31, April 30, March 31, April 30,
2004 2003 2004 2003
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Interest income $ 16,967 $ 6,219 $ 67,157 $ 6,219
General and
administrative
expenses (990,276) (25,327) (1,115,783) (48,696)
Exploration
expenses (117,412) - (117,412) -
Loss on disposal
of capital assets - (1,844) - (1,844)
Amortization - - - (97)
Foreign exchange
gains (losses) 26,705 (5,337) 12,174 (7,438)
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Net loss for
the period (1,064,016) (26,289) (1,153,864) (51,856)
Deficit, beginning
of period (6,708,811) (6,297,847) (6,618,963) (6,272,280)
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Deficit, end
of period $ (7,772,827) $ (6,324,136) $ (7,772,827) $ (6,324,136)
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Basic and diluted
loss per share $ (0.02) $ (0.00) $ (0.05) $ (0.00)
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Weighted average
number of common
shares
outstanding 51,533,596 11,871,849 23,977,933 11,871,851
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See accompanying notes to unaudited interim consolidated financial
statements.
Medoro Resources Ltd.
Consolidated Statements of Cash Flows
Expressed in Canadian dollars
Unaudited
Two Months Three Months Five Months Six Months
Ended Ended Ended Ended
March 31, April 30, March 31, April 30,
2004 2003 2004 2003
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Cash provided by
(used in):
Operating
activities
Net loss for
the period $ (1,064,016) $ (26,289) $ (1,153,864) $ (51,856)
Items not
affecting cash:
Loss on disposal
of capital assets - 1,844 - 1,844
Amortization - - - 97
Foreign exchange
(gains) losses (26,705) 5,337 (12,174) 7,438
Changes in non-cash
working capital
items:
Accounts
receivable (240,853) (6,869) (305,209) (5,508)
Promissory note - - 50,000 -
Inventories 1,633 - 1,633 -
Prepaids and
deposits 9,422 3,770 7,896 (2,082)
Accounts payable
and accrued
liabilities 503,695 (1,361) 456,581 2,719
Other long-term
liabilities 641,858 - 641,858 -
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(174,966) (23,568) (313,279) (47,348)
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Investing activities
Acquisition of Sardinia
Gold Mining SpA,
net of acquired
cash (Note 2) (132,058) - (1,502,494) -
Acquisition of
mineral properties
(Note 3) (998,290) - (998,290) -
Increase in property,
plant and equipment (15,875) - (15,875) -
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(1,146,223) - (2,516,659) -
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Financing activities
Issuance of special
warrants - - 295,000 -
Issuance of
subscription
receipts - - 8,015,000 -
Issuance costs (8,530) - (781,515) -
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(8,530) - 7,528,485 -
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Net increase (decrease)
in cash and
equivalents (1,357,137) (23,568) 4,761,129 (47,348)
Cash and equivalents,
beginning of
period 9,249,605 216,699 3,221,339 240,479
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Cash and equivalents,
end of period $ 7,892,468 $ 193,131 $ 7,892,468 $ 193,131
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See accompanying notes to unaudited interim consolidated financial
statements.
Medoro Resources Ltd.
Notes to Unaudited Interim Consolidated Financial Statements
For the Two and Five Months Periods Ended March 31, 2004 and the Three
and Six Months Periods Ended April 30, 2003
All Amounts Expressed in Canadian Dollars
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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 (the 'Company'), Full Riches Investments Ltd.
('FRI') 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 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 FRI's 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 was, at that time, 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 held 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,
including the amalgamation of FRI with GMS England's wholly owned
subsidiary, Medoro Resources Ltd. ('GMS Canada'), incorporated under
the laws of the Yukon, to create the Company to continue under the
name of Medoro Resources Ltd. 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 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 was 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 for 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 share 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 entitled the holder to acquire one FRI common share
at a price of $0.35 until January 15, 2006. 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 will have 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 was 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
(Note 2) $ 8,834,223
Fair value of GMS England options and warrants
exchanged for options and warrants of the Company
(Note 2 g (iv)) 61,403
Acquisition costs 1,450,000
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Total consideration $ 10,345,626
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Net assets acquired:
Cash $ 442,010
Accounts receivable 1,750,112
Inventories 655,756
Prepaids and deposits 158,821
Mineral interests 21,043,370
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)
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$ 10,345,626
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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 March 31, 2004, $1,032,168 of the acquisition costs are
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 $3,198,290 represented by a cash payment of $998,290
(600,000 Euros) and the issuance of 4,000,000 common shares of the
Company. The share issuance received approval from the TSX Venture
Exchange 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 Amount
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Opening balance, 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
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Balance February 24, 2004, prior to
Amalgamation 85,671,849 $18,902,441
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Opening balance, 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
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Closing balance as at March 31, 2004 81,882,043 $26,711,664
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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.
(b) Escrow shares
As at March 31, 2004, there were 3,639,000 common shares of the
Company held in escrow.
(c) Stock options
As at March 31, 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.
5. Related Party Transactions
During the five months period ended March 31, 2004, the Company paid
the following amounts to related parties:
(a) Consulting fees of $10,000 and rent of $4,000 (2003 - Nil) to a
company in which a director of the Company is an officer.
(b) Consulting fees of $164,864 were paid and accrued (2003 - Nil) 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 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 in accounts payable and accrued liabilities at
March 31, 2004 owed to four consultants to the Company. The shares
are subject to a hold period expiring on July 30, 2004.
Management's Discussion and Analysis of Results of Operation and
Financial Condition for the two and five-month periods ended and at
March 31, 2004
This Management's Discussion and Analysis should be read in conjunction
with the Company's unaudited consolidated financial statements for the
periods ended March 31, 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 as of May 17, 2004.
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 Sardegnain 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
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. can earn a 70% 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 by funding all of Bolivar Gold's obligations. At
Furtei, Sargold Resource Corporation is earning a 45% interest in the
concessions by funding (euro) 15 million over an 8 year period.
Medoro Resources' vision is to create the pre-eminent European-focused
gold exploration company with a diverse portfolio of gold prospects
throughout the region. To achieve this objective, the company intends to
leverage off of its existing land position in Sardegna. 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
Italyand throughout Europe.
In order to achieve this strategy, the company must reduce the negative
cash flow associated with the formerly producing GMS assets to a point
where Medoro is organized and operated on largely 'cash neutral' basis,
with all exploration funding provided by joint venture partners. Failure
to achieve this will limit the company's ability to acquire new
properties and may ultimately require the sale of some assets or
additional equity financing, if available. 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 cash flow operations sufficient to cover all corporate costs on
an ongoing basis.
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 March 31, 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 $1.1 million in the five months ended
March 31, 2004, with $1.0 million occurring in the last two months of the
period. In addition, a total of $117,000 was expended in the past two
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 $175,000 in the two months
ended March 31, 2004 and a further $138,000 in the preceding three
months. Investing activities in the two and five-month periods ended
March 31, 2004 consist largely of the acquisition of the Pestarena
property in northwestern Italy at a cash cost of $1.0 million plus the
issuance of 4 million shares. During the five months ended March 31, 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.
At March 31, 2004, Medoro Resources had $7.9 million in cash and working
capital of $5.9 million. In order to achieve its objectives, the company
has initiated a thorough review of all activities in Sardegna with a view
to reducing ongoing costs not recoverable from exploration partners to a
minimal level. At the same time, there are approximately $1.2 million in
trade payables, many of which are greater than 90 days overdue, which
need to be settled in the coming months. In addition to reducing ongoing
costs, management is actively looking at a number of possible corporate
arrangements which could help ensure that shareholders ultimately realize
the inherent value in the company's exciting exploration portfolio. In
the absence of success in these initiatives, some combination of asset
sales or additional financing would be required to ensure the company's
long-term survival.
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(at)medororesources.com
(MRL.)